The government's growth forecasts for the next five years are largely unchanged in its pre-election update from the May budget, though the latest bout of global jitters has thrown up a number of risks if the world economy goes pear-shaped.
The Treasury has kept its estimate the government's books will return to an operating surplus by 2015, even as gross domestic product grows more slowly than earlier expectations.
Finance Minister Bill English told a media briefing in Wellington that comes down to a clamp down on Crown expenditure, lower interest rates, and a pick-up in employment likely to reduce transfer payments by more, even as tax revenue fails to improve as fast as forecast.
"Government spending is just beginning to fall as a percentage of GDP, and our external liabilities, the most significant vulnerability, has fallen from 85 percent of GDP to 70 percent," English said. "By international standards it's still too high and it will take some time to get down to satisfactory levels."
The smoother track of Treasury's forecast will help allay fears last month's double downgrade of New Zealand's sovereign credit rating derailed the country's economic recovery, which has been putting a lot of stock in the delayed Christchurch rebuild effort.
This year's PREFU is a significant improvement on that delivered in 2008, when the phrase "A Decade of Deficits" entered the lexicon. The economy was already heading into recession at the time of the PREFU, and Audrey Young from the Herald had signalled back at the time of the 2008 Budget that all was not well; she wrote at the time:
The cupboard is almost bare and that is the way Michael Cullen planned the 2008 Budget.
He has delivered a Budget that offers a little of something for almost everyone but his biggest gift is to National - an election-year headache.
There is so little cash left to play with, $1.75 billion, that National will have little headroom to make attractive tax promises without saying what funding commitments Labour has made it will scrap.
That is what Michael Cullen promised and that is what he has delivered. The $1.75 billion isn't real either because $750 million of it was earmarked for health long ago.
Phil Goff's revealing comments this week showed that Labour is into legacy politics and this is a legacy Budget - a legacy to National. It will make it harder for National to win and if it does win, it will make it harder to govern.
Labour MP's constantly pepper Bill English with Questions for Oral Answer trying to emphasis what a prudent custodian of the public purse Dr Cullen had been. PREFU 2008 was Michael Cullen's parting shot to New Zealanders.
And whilst what English has presented to the electorate today isn't pretty by any stretch of the imagination, it shows an economy on track to return to surplus in the 2014-15 financial year.
The cost of rebuilding Christchurch is forecast to rise further; it's now expected to top $20 billion. That is a huge cost for New Zealand, but it is a cost that simply must be borne.
Let the 2011 election campaign begin, now that the books have been opened; Ruth Richardson's enduring legacy to New Zealand. Labour and the Greens need to be challenged on where the billions of dollars in unfunded policies already announced will come from, because there is simply no money for extravagant policies, promises and inducements.
17 comments:
Now, if someone could just stop some of the world's major economies deliberately debasing their currencies, we might be able to get somewhere.
Popped over to Homepaddock, where Ele's singing the same strangled tune as you, Inv2, and this guy had a comment that just didn't fit with your and her assessments of the PREFU, so it's worth sharing for the sake of balance:
Mike Johnson says:
October 25, 2011 at 3:44 pm
Gosh, Ele, Tracy Watkins of the ComPost must be reading a different PREFU to the one Bill gave you.
After Treasury opened the books on yet another gloomy forecast, it is tempting to ask whether things could get any worse.
Well, yes, is the short answer.
In a case study presented by Treasury in today’s Pre-election Fiscal Update (prefu) as one extreme scenario, we are caught in a downward spiral that ultimately results in the Government being so bust it can’t pay its bills.
But even under less extreme scenarios, Treasury acknowledges that New Zealand’s credit downgrade by international ratings agencies Fitch and Standard & Poor’s – with potentially a third, Moody’s, tipped to follow suit – has exacerbated some of the downside risks faced by the New Zealand economy.
http://www.stuff.co.nz/national/politics/5848319/Grim-forecast-for-New-Zealands-finances
I haven't seen Ele's piece Robert; fater I saw the Twitter barrage from journos start, I went to the Herald site and to Suff, and both had similar stories. I haven't seen Tracy Watkins' story yet, but will do when I've finished the GST which has to be posted tomorrow; have to do my bit for the government's books!
Hmmmm; that should, of course, read "after I saw the Twitter barrage..."; my brain is still recovering from Sunday's late night/Monday's early morning!
I think it's great that the people of NZ, and that include the likes of Labour, Greens & Mana, expect our National lead Govt not to struggle like the rest of the world.
If that lot win the election, I will visit bOb's quaint blog daily asking the tough questions, not lame bollocks statements he makes here
Come over and ask them now, Jabba, in preparation for your defeat :-)
(I'll go easy on you if you'll teach me how to do the 3-way-Key handshake - all Righties do it that way, eh.)
This is what the Greens think of the situation, Inv2. It's sensible and rather than gloss over what looks a very bad situation, or blame Cullen for it (for goodness sake!), read this and take note. Russel Norman is emerging as the go to man for the media when they want sensible, honest comment on fiscal matters. Here's what he thinks:
"The results of the Pre-Election Economic and Fiscal Update (PREFU) show that
Treasury are predicting persistent cash deficits and growing government debt
continuing beyond June 2016, calling into question the National Government's
fiscal and economic management, Green Party Co-leader Russel Norman said
today.
"The PREFU show that the Government continues to run residual cash deficits
past the end of the forecast period in June 2016. The PREFU states that these
residual cash deficits will be funded by further debt," Dr Norman said.
"The Government will want us to focus on the Crown operating balance which
goes positive in the year ending June 2015. But cash deficits will remain,
and the increase in Government debt will continue under a National-led
Government.
"Moreover, the Inland Revenue Department is $3.5 billion more pessimistic
about revenue forecasts over five years than Treasury's rosy predictions,
with the result that cash deficits are likely to be even worse.
"The Government's fiscal strategy of tax cuts for the top 10% of income
earners is costing the Government $2 billion per year - a very poor quality
of spend when facing record borrowing."
It's not just the Government fiscal strategy that looks in trouble; the
economic outlook is poor. The PREFU revealed today that the current account
deficit and the Net International Investment Position will worsen in the
years ahead.
"The underlying structural imbalances in the economy remain, with the result
that the current account deficit makes a savage return to 6.9% of GDP in
2016, and the net overseas debt increases," said Dr Norman.
"On fiscal policy, the Government's failure to consider revenue-raising
alternatives will now mean increased borrowing, and increased interest rates
for all New Zealand businesses and mortgage-holders as a result of the credit
downgrade.
"The Green Party's proposal to raise a temporary earthquake levy to help pay
for the Christchurch rebuild was a better alternative to funding the rebuild
entirely through debt.
"For the longer term, the Green Party's proposal for a comprehensive tax on
capital gains (excluding the family home) will greatly assist the rebalancing
of the economy onto a more productive footing while providing an additional
revenue stream to pay down debt faster.
"If the Government was smart, it would change its current fiscal and economic
plan in light of the evidence that it's still not working," Dr Norman said.
Jabba, if you do go over to Robert G's that will make 2 of you and you will be able to have a conversation
Inv2 and Robert - I have actually had a good skim of the PREFU and commented on it over at Home Paddock.
Getting away from Roberts long string of Green propaganda above, the PREFU does not state that the sky is falling or that we should all run around like headless Green chooks.
There is actually a reasonable amount of good news in there.
Just depends how you read it.
I will not be responding to any of your inanities tonight either Robert, as like Inv2 I have taxes to pay - PAYE calculations this evening for next month.
The joys of working as an unpaid tax collector for the government :-)
Ross
Must say, the Nats and Act have failed to ignite this economy. Pretty sad attempts to deflect the incompetence of the incumbents.
The policy of the left is again proving to be the more astute. But smile, slash and wave is some people's messiah. Unsurprising considering the blind faith of the right wing and their adherence to failed policies of the past. They blame the past yet look to the past... Evidence is anathema to tory conservatives.
Liberal progressives learn. That is why they are progressive and liberal.
richard, your communist propaganda doesn't wash with any thinking person. The policies of the extreme-left Liarbore and Watermelon parties are the same as always: crush the productive with punitive taxation policies, then stand around scratching your heads when the last nett tax payer climbs on the plane with a one-way ticket.
The policies of the soft-left National aren't much better. You're right in the respect that National and ACT have failed to ignite the economy, but that's because they stubbornly follow the Marxist redistributive taxation policies of Liarbore. Had National wound back the Welfare for Families, taxpayer-funded student loans and various other "vote for me" bribes of the Klarkenfuhrer, and had they bothered clearing away those components of the government which serve absolutely no purpose other than to lobby the government (starting with NIWA, the Climate Change Department and any Ministry, Department or QANGO ending with "Affairs") they would be able to cut corporate tax rates to a reasonable amount (in the 10-15% range) and THAT would have ignited the economy.
Back to your gated e-community quickly, Gantt.
The smell of us will cling to your clothes and you'll be shunned by your own.
Thanks for confirming what I already knew about you leftards, Robert: can't compete on the ideas (because you're all semi-literate, knuckle-dragging idiots and don't have any) so you resort to insults*. And manage to prove once again you don't understand the concept of private property.
*which I know I just did, but mine is based on empirical evidence. And I went to the trouble to respond to richard on the issue first.
Don't concern yourself Gantt; Robert's concept of "ideas" is to blog about John Key's diction, or Gerry Brownlee's waistline. When you press him for a rational argument, he either vanishes or changes the subject.
Those are the only three tactics available to a leftard, Inv: play the man, change the game or take you bat & ball and go home.
My apologies for messing up your blog by feeding the trolls.
The Gantt Guy says:
'communist'
'Liarbore'
'Watermelon'
'Marxist'
'Klarkenfuhrer'
'semi-literate, knuckle-dragging idiots'
and yet hopes for reasonable discussion.
Hold on! Perhaps he doesn't!
Back to the Rabbit, Gantt, where you are amongst your own.
No apology required Gantt; I tolerate a range of views, and take the attitude that what a commenter says will usually reflect more about them than it does about me or Keeping Stock!
Reflect on the irony of suggesting that people aren't here for "reasonable discussion" Robert; pot, kettle and all that.
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