New Zealand's 2025 budget is likely to reveal a small increase in the bond program, with tax revenue losses and higher capital spending partly offset by tighter control of operational spending, according to a Thursday report by Westpac IQ.

The country's finance minister will present her second budget on May 22.

A weaker outlook for trading partner growth will weigh on forecast tax revenues, but the impact should be largely offset by a decision to reduce this year's operating allowance, together with other savings initiatives.

There is uncertainty over how much of the foreshadowed new spending on defense will be met within existing unallocated capital allowances, instead of from additional borrowing.

A key component of the government's strategy is to achieve an operating surplus in 2027 to 2028, if possible. The half-year economic and fiscal forecast pointed to surplus being achieved a year later, in 2028 to 2029.

The minister indicated that the treasury forecasts in the budget will project weaker real economic growth in New Zealand in 2025 and 2026 than expected at the time of the half-year forecast, thus reducing forecast tax revenue.

The minister announced earlier that she had decided to reduce the size of the budget operating allowance for new spending or revenue initiatives to just NZ$1.3 billion from the NZ$2.4 billion allowance set previously.