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:
