The economy is growing strongly, but Treasury has cut the amount it expects to raise in tax and with it, the size of future surpluses.
Today the Treasury released the pre-election economic and fiscal update (Prefu), giving an update on the state of the Government's books just a month out from the election.
Crucially, Finance Minister Bill English's long promised surplus for 2014/15 is said to be on track by Treasury, the Crown's official bean counter. The surplus is, in fiscal terms, wafer-thin at $297 million, down from $372m in the last forecast, and equivalent to just 0.2 per cent of total economic output.
But the outlook for surpluses in the following years is markedly weaker than it was in May's Budget, delivered just two months ago.
In each of the next three years Treasury has cut the projected surplus by $500m, meaning the combined surplus between now and mid-2018 is $6 billion, some $1.5b below what it was expected to be in autumn.
The lower surplus forecasts means there is less scope for new spending by the Government, and that Crown debt would take longer to reduce.
Today Treasury said debt, in nominal terms, would now peak at $67.9b in 2018. It was expected to peak at $65.5b in 2017. With debt taking longer to fall, Treasury said, based on current settings, payments to the NZ Superannuation Fund, put on hold when National came to office as the recession hit, would be delayed a year to 2020/21.
Nevertheless, the economy in general is "growing strongly", Treasury Secretary Gabriel Makhlouf said.
Forecast to grow at an average of 2.8 per cent over the next four years, Makhlouf said this was "above its sustainable long term capacity to grow" meaning inflationary pressure on the economy is building with a strong residential housing market in Auckland and Christchurch.
That the economy is forecast to continue to grow strongly, but not too strongly, is good news indeed. Unemployment is falling, more people are in employment than ever before in New Zealand's history, exports hit $50 billion for the first time ever, and inflation remains low. Much of that can be attributed to Bill English's "steady as she goes" management of the economy through the Global Financial Crisis and the recession which followed.
And Treasury Secretary Gabriel Makhlouf sounded a warning today in releasing the Prefu:
"It underlines, among other things, the importance of fiscal restraint in a growing economy," Makhlouf said.
"Prudent careful management of the Crown's finances remains a priority as the Crown looks to maintain annual surpluses and remain on track to pay down debt."
English said the Government would seek to keep on top of its books in a bid to give certainty to households.
"There is no room for significant loosening of the purse strings," English told reporters at a press conference in the Treasury this morning.
While National wanted to reduce taxes "when there is room to do so", English warned that any cuts, when they came, were likely to be modest, and flatly ruled out an announcement on a possible tax cut package ahead of the election.
English said National maintained room to alter its spending plans, where Labour had committed all of its spending allowances for the next four Budgets.
"They have no more choices against what they've already committed," English said, adding that the spending of the Green Party was on top of that proposed by Labour.
New Zealand's economic recovery could be killed stone dead if a big-spending, high-taxing Labour-Green-MegaMana-NZ First government is elected in just 32 days time. If ever there was a need for no change, it is right now.
Allowing the likes of Russel Norman, Metiria Turei and Hone Harawira anywhere near the Treasury Benches would be a disaster. We only have to look at Australia for an example of the damage a Labour-Green government could do; whilst New Zealand's unemployment rate is the lowest it has been for five-and-a-half years, Australia's unemployment rate is at a twelve-year high, and is still rising. Australia used to be called the Lucky Country, but New Zealand is lucky it had Mr English at the helm.
Bill English has done a stellar job to turn a Decade of Deficits and the sea of red ink which was the 2008 Prefu into a surplus just six years later. For that reason alone, he deserves a third term as Minister of Finance. But more importantly, the New Zealand economy NEEDS Bill English's skills if it is to reach its potential as it recovers.