By Lucy Craymer
WELLINGTON, Sept 29 (Reuters) - New Zealand's government on Tuesday forecast a smaller budget deficit and a lower debt than projected in its May Budget, while striking an upbeat tone on economic growth ahead of a general election in November.
In a pre-election update, New Zealand's Treasury forecast an operating balance before gains and losses (OBEGAL) deficit of NZ$8.73 billion ($4.94 billion) in the fiscal year ending June 30, 2027, compared with a NZ$14.09 billion deficit forecast in May.
The government now forecasts a return to an OBEGAL surplus in 2028-29, compared with the May Budget forecast of 2029-2030.
The economy is only gradually emerging from prolonged weakness, with the Treasury update closely watched for signs the recovery is broadening beyond the export sector, as global geopolitical tensions and soaring energy prices cloud the outlook.
New Zealand Finance Minister Nicola Willis said in a press conference that the improved results were in part due to the economy performing better than expected in the last financial year, resulting in higher tax revenue.
"In addition to greater tax revenue, the books have benefited from government spend being a little lower than expected," Willis added.
However, she warned that there was a lot of work to be done to turn forecasts into reality and said there were clear risks from the ongoing instability in the Middle East.
The government is required to release updated economic and financial forecasts ahead of the general election on November 7. With economic growth only just starting to improve, inflation back above 3% and unemployment sitting at a decade high, the economy is shaping up as the key issue in November's election.
Recent polls show Labour edging out the incumbent National Party and governing in a centre-left coalition, though the result is still too close to call.
The Treasury said inflation is set to return to the government's target band of 1% to 3% in the second quarter of 2027.
($1 = 1.7662 New Zealand dollars)
(Reporting by Lucy Craymer; Editing by Alasdair Pal and Muralikumar Anantharaman)
