Nicola Willis high on a surplus of inflation and unemployment

The pre-election projection has been released by Treasury. Radio NZ

Nicola Willis has been given a pre-election reprieve, with Treasury painting a brighter picture of the government’s finances in the short term.

But the update comes with a sting in the tail for voters, with the recovery largely driven by an increased tax take due to “higher and more persistent” inflation.

And longer-term risks remain.

Those longer term risks include

The economy was forecast to grow an average of 2.6 percent over the forecast period, while unemployment was picked to trend down from this year’s 5.6 percent peak to eventually reach 4.3 percent.

Treasury caveated all its numbers, noting “considerable uncertainty” and risks skewed towards weaker growth and higher inflation.

The main uncertainty in the near term was the “persistence of the oil price shock” arising from the Middle East conflict.

Officials also noted that oil prices and interest rate expectations have increased since their forecasts were finalised.

Which is why I’m not going to bother enumerating exactly why I think the numbers are probably bullshit.

Just consider this. In Budget Economic and Fiscal Update 2025 (BEFU 2025), the New Zealand Treasury projected the late-2026 economic levels to include an unemployment peak easing down and inflation stabilizing near the midpoint of the target band. They expected that:-

• Inflation (Consumers Price Index / CPI): Projected to ease down toward the Reserve Bank’s target midpoint of 2.0% by mid-to-late 2026.
• Unemployment Rate: Projected to peak around 5.4% in early 2025 before gradually declining over 2026 toward a medium-term target of 4.3%.

By the BEFU 2026 they were anticipating a inflation peak of 4.0% in mid-2026, staying higher for longer and Peak of 5.5% in mid-2026.

This latest Pre-election Economic and Fiscal Update (PREFU 2026) just has CPI inflation continuing higher and more persistent and somehow miraculously falling below 2% by the end of 2027. And they think that unemployment has now peaked at 5.6% towards the end of 2026.

Personally I can’t see any signs that young adult unemployment is diminishing, nor that the homeless numbers are falling – both of which I’d expect to see if the employment economy is actually improving. Nothing that I see says that unemployment is staring to fall. I’d say that on current policy settings it is more likely to rise.

I also can’t see that the main current reason for widespread world wide inflation will improve. Trump will still be in the White House in 2027 and he isn’t due to be un-elected until late 2028.

Diesel prices are still rising. Tariffs are still diminishing large markets. The bond markets are showing few signs of institutional confidence. We still have a rapidly ageing population with a generation of young adults experiencing the sustained mass unemployment at similar levels to those of the mid-1990s. Hardly the best training to become well employed taxpayers if National’s local recession ever ends. About the only thing that is going well is that we have some good prices on dairy – something that is likely to be temporary.

That inflation rather than economic growth is the key factor in Nicola Willis closer approach to budget surplus through fiscal drag is just a warning sign that the economy under National’s mismanagement that their promised future a few like Nicola Willis getting stoned in good scenery celebrating her surplus, based ona future of misery for most.