Brighter inflation outlook in NZ, despite fiscal gloom

Already in recession, New Zealand's fiscal woes will extend for another three years with a worsening economy pushing back a return to surplus to 2027/28.

However, Treasury sees light at the end of the tunnel in New Zealand's fight against inflation.

Treasury released its latest economic update on Thursday alongside the right-leaning coalition government's first budget.

The budget's headline figure was a deficit of $NZ11.1 billion ($A10.3 billion), almost $NZ2 billion ($A1.8 billion) more than December's mid-year projections, confirming New Zealand's fifth straight deficit.

The updated Treasury guidance tips further deficits will follow before a tiny $NZ1.5 billion ($A1.4 billion) surplus in 2027/28.

NZ last posted a surplus in 2019/20 before the Labour government's COVID-19 pandemic spending plunged the books into deficit.

Shopping supermarket
Treasury officials say New Zealand will tame inflation in 2024 but a budget surplus is years away. (Lukas Coch/AAP PHOTOS)

Finance Minister Nicola Willis said NZ had been "borrowing to pay for the groceries" since then.

"Big government spending has fuelled inflation and caused a significant deterioration in New Zealand's fiscal position," she said.

Ms Willis has pledged to be a lesser-spending finance minister, giving herself operating allowances averaging $NZ3.5 billion ($A3.2 billion) each year of this parliamentary term.

She has pre-committed more than $NZ1 billion each year to health spending, meaning her new spending envelopes are much smaller than the Labour government's.

Government debt will come in at $NZ86 billion ($A79 billion) this budget, peaking at $NZ114 billion ($A105 billion) in 2027.

The updated forecasts see real GDP growth falling 0.2 per cent in 2023/24, confirming the shallow double-dip recession, with anaemic growth of 1.7 per cent tipped in 2025.

The upside to the tanking economy is a brighter inflation forecast than six months ago.

Inflation is now predicted back in the target band by September - a quarter ahead of previous predictions - dropping to 2.5 per cent rather than 2.9 per cent by year's end.

"The Reserve Bank is responsible for getting back to that inflation target but we're doing our bit," Ms Willis said.

Unemployment is tipped to peak at 5.3 per cent at the end of 2024 but stay above 4.5 per cent for the next three years.