Wellbeing Budget 2023

Support for today
Building for tomorrow

The recent widening of the current account deficit is expected to reverse

New Zealand’s current account deficit has increased considerably over the past year with an annual deficit of 8.9 percent of GDP recorded in the year to December 2022. There have been widening deficits across the goods, services and income components of the current account. Poor growing conditions for produce during 2022 constrained goods exports, while strong domestic demand has seen imports increase. The annual services deficit continues to show the effects of COVID-19 on international tourism, while high international freight costs have boosted transport services imports. Rising interest rates affect debt servicing costs in the income balance.

The Treasury’s forecasts are for the current account deficit to narrow to just below 4 percent of GDP by the end of the forecast period. The continued recovery in international tourism, together with moderating freight costs play the largest role in this improvement. In addition, weakening consumer demand reduces import demand in the shorter term, although investment related to the North Island weather events will contribute to import demand over the forecast period.

Slower nominal GDP growth leads to lower forecast tax revenue

Nominal GDP growth is slightly weaker than forecast at the Half Year Update. In part this reflects a lower terms of trade as a more fractious global trade environment means that downward pressure from globalisation on the prices of many tradable goods is less marked than has been the case in the past couple of decades. Consequently, import prices are relatively more expensive. Lower nominal GDP is reflected in lower forecasts for tax revenue relative to the Half Year Update.

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