Finance Minister Grant Robertson has delivered a bigger than expected Budget, characterised by more borrowing rather than reprioritised spending.

The Budget includes $6 billion ring-fenced for a “National Resilience Plan”. And the capital allowance is increasing by $20.5 billion over the next four years, and $8.5b larger than planned in December.

Both operational and capital expenditure are higher than foreshadowed in the Budget Policy Statement, released in December.

That means more will be spent on the day-to-day running of the country, as well as on longer-term infrastructure investments.

There was an assumption before the Budget that some projects would need to be cancelled to free up resources for the recovery from Cyclone Gabrielle and other adverse North Island weather events.

Nonetheless, Budget 2023 sees the capital allowance expand by more than planned, aside from additional money being put towards the recovery.

As for operational expenditure, this increases by $4.8b over the next year – more than the $4.5b planned in December. Allowances for the following three years are also up by $500 million a year.

The magnitude of this additional expenditure will require the Treasury to issue a lot more debt than was expected.

$120 billion of bonds

The Treasury’s New Zealand Debt Management plans to issue $120b of New Zealand Government Bonds over the four years to 2027.

This is $20b more than forecast in December, and about $10b more than major bank economists expected.

Treasury will stick to its plan to issue $28b of bonds in the year to June this year, before upping its issuance to $34b next year, $32b in 2025, $30b the year after that and $24b in 2027.

More spending and investment are pushing up the forecast bond issuance programme.

But that is also affected by the unwinding of the Reserve Bank’s Large-Scale Asset Purchase programme, the need to refinance short-dated debt issued during the peak of the pandemic as it matures, and Kāinga Ora no longer taking out its own debt.

Deeper into the red, but surplus in 2026

Pulling it all together, the books are forecast to sink further into the red and take a year longer to get back to surplus than was expected in the Treasury’s half-year update, released in December.

The Treasury forecasts a $7b deficit in the current year, and a $7.6b deficit next year. Thereafter it sees the deficit narrowing until the books get back to surplus by 2026.

If the Treasury ends up being correct, it will take six years from the onset of Covid-19 to get the books back into surplus. This is the same length of time it took the National-led Government to achieve a surplus after the Global Financial Crisis.

Despite the Budget being larger than Robertson foreshadowed in December, the Treasury doesn’t expect inflation to be much worse than forecast in December.

It sees the rate dropping to 3.3 per cent next year and 2.6 per cent (within the Reserve Bank’s target range) in 2025.

The Treasury noted “higher interest rates will continue dampening inflationary pressures”.

The Reserve Bank suggested in its last Monetary Policy Statement it would lift the Official Cash Rate one more time next week, from 5.25 to 5.5 per cent.

But some bank economists earlier this week adjusted forecasts, saying stronger immigration and the likelihood of more Budget expenditure could push this peak up to 5.75 or 6 per cent.

Digging further into the details of the government’s books, the Treasury forecasts higher expenditure and lower tax revenue over the next four years than expected in December.

As a percentage of gross domestic product (GDP), core Crown expenditure is expected to stay above pre-Covid levels and core Crown revenue is expected to rise to above pre-Covid levels.

Economy to grow, Treasury says

The Treasury forecasts GDP growth of 3.2 per cent in 2023, 1.0 per cent in 2024, 2.1 per cent in 2025, 3.1 per cent in 2026 and 2.9 per cent in 2027.

How does this impact net core Crown debt? The Treasury expects this to come in at 39 per cent of GDP this year, then rise to a peak of 43 per cent, before falling to 37 per cent by 2027.

Robertson had got net core Crown debt to GDP below 20 per cent before Covid.

The measure of debt he now uses is “net debt”, which is forecast to peak at 22 per cent of GDP in 2024.

Finally, the Treasury forecasts the country’s current account deficit narrowing over the next four years, as tourism picks up, but not quite to pre-Covid levels.

The deficit is currently one of the widest among developed countries at nearly 9 per cent.