Prime Minister John Key is sticking to the line that the government may be able to return its books to surplus earlier than the 2014/15 track outlined in Treasury’s forecasts, despite Treasury highlighting yesterday a one-in-five chance of considerably lower growth over the next five years.
Speaking to a senior citizens group in Kapiti on Wednesday, Key said the numbers released by Treasury in its pre-election update yesterday were “pretty good.”
The government was looking to return the books to surplus in 2014/15, or "maybe slightly earlier," Key said.
Yesterday’s PREFU release forecasted a government operating deficit before investment gains and losses of NZ$943 million in the 2013/14 year, before a NZ$1.450 billion surplus in 2014/15.
'We have a plan, but not for the downside'
Speaking to media after the meeting, Key was asked whether the downside scenario in the PREFU meant his desire to reach surplus before 2014/15 was more unlikely. Treasury's downside scenario in its forecasts (it gave no upside scenario) showed GDP could be NZ$35 billion lower over the next five years if the European sovereign debt crisis was not sorted out, and global growth was lower than expected. Treasury gave a one-in-five chance of the downside scenario occuring.
“The truth of it is we live in very uncertain, volatile times. We have actually for the last three years," Key said.
“What I think is the important point here is to have a plan. We have a plan, and we have a single focus on trying to get back into surplus. That’s why we ran a zero budget [in 2011], despite the fact that half of our entire deficit for 2011 was tied up with the earthquakes,” he said.
Despite there being the downside scenario, the “burden of proof” for the government’s actions was there was a four-out-of-five chance of the downside not happening.
“At the end of the day, governments react. In 2009 we actually cancelled our tax cuts that we campaigned on. It was a very hard decision for me to personally make, because I had campaigned vigorously on that. But I went to the New Zealand public and said, look I just don’t believe it’s affordable in the conditions we’ve got," Key said.
“People can always change their position. But you’ve got to do that in good faith. What we campaign on is what we believe, but we’re campaigning fundamentally on a very, very, very austere programme. We’re not talking about having a capital budget, because fundamentally we’re releasing capital from the mixed-ownership model," he said.
“We’re talking about a new budget spending component which is fundamentally about a third to a quarter of what Labour was spending in their last years. We’re talking about massive reprioritisation of money within the public sector as we have before.”
Asked whether it would be responsible to outline to voters what path the government would take if the economy did move toward the downside scenario, Key replied:
“I think you’d have to see what ultimately went on. Let’s see. Treasury’s factored in what they think is the best indication of global growth, and that’s actually mirrors the IMF.”
'Let's see on Europe'
Meanwhile, it was “let’s see” on the economic situation in Europe as major developments there came daily.
Events overnight worried markets after a Finance Ministers’ meeting of the major European economies was cancelled, and as leaders remained divided on how to deal with the situation there. See more in Bernard Hickey’s 90 seconds at 9am here.
In the PREFU document, Treasury said it assumed European governments would manage the region’s debt crisis and stabilise financial markets.
“The greatest uncertainty is associated with the euro area sovereign debt crisis, which we expect to be resolved only gradually, with risks around key developments,” Treasury said in the PREFU.
“The outcome of meetings of European leaders scheduled to occur between the finalisation of this text and its publication, and in the period closely following publication, could change the outlook for the euro area and the global economy,” Treasury said.
Treasury finalised its ‘specific fiscal risks’ in the PREFU, and the document’s text, on October 18, a week before the PREFU was released on October 25.
Treasury’s economic forecasts and economic data were finalised on September 26. Tax revenue forecasts were finalised on September 30, and fiscal forecasts were finalised on October 18.
Here is Key telling the Kapiti audience about the PREFU:
(Updates with quotes from Key, background from PREFU, second video of Key on PREFU downside risks)
33 Comments
Greeks have made up their own mind about any "return" to anything!
"The head of an Athens bank branch told BILD: "More and more Greeks who still have some money come to get it from the bank. In my office there are a total of 5,000 customers, 2,500 of which either have their money transferred abroad or hoard it at home. If this continues, there will soon be no more money."
http://globaleconomicanalysis.blogspot.com/2011/10/lines-to-withdraw-deposits-queue-up-as.html
The hard task for Cunny and co is to come up with better spin than Bill and JK....JK will say the 'assumptions' are good right up to when he tells punters the 'assumptions' were overly optimistic...which will be after the election....hahahahaaaahahaa
All Cunny can do is say he can borrow more than Bill and wave his magic wand to turn the borrowed loot into growth and wealth and jobs and 'recovery'....yurk.
Labour seem to be saying that they will be even "tighter" than National and not borrow any more...so we can all sleep safe in our beds then......
Apart from that where is Labour to go? they cant sensibly promise any better (yet even more growth) than National and if they promise less the voter will decimate them at the polls. When they both sing the same tune which is "growth is king, long live the king" and have done for decades as the only option available then they have no where to go...
regards
Labour won't flog off the family silver, so they will obviously have a higher deficit short term, however when you sell an asset like a power generator which has an enormous lifespan, you never ever get close to the net present value. Especially not in these testing times.
Just remember that many of those who shifted to National in 2008 were tired of 9 years of Labour but also willing to see if National could do any better.
Unfortunately National have not done too well even though they are buying time and votes with debt we will have to pay back, but the smiles and waves keep coming.
The beneficiaries of this may well be the Greens, not for any policy reasons but because they are a "lesser evil" without any real power to make their policies sick.
We had long been NZ First supporters - liked their policy on the Reserve Bank Act, on exchange rate issues and on ending reference to Treaty principles across all legislation Having worked in CG and LG, you would not believe the waste of time spent on documenting how one's area is going to address the principles of the Treaty of Waitangi - and it's in the main just fluff. For those that don't realise ... these so called principles do not exist in the actual Treaty document - they have been made up by CG, the Courts and the Waitangi Tribunal - all have a slightly different set of them!
And NZ First's voting record in Parliament showed they stuck to their stated policies. We accepted Winnie had to target elderly-friendly policy (but would have liked to see someone proposing at the least, means testing) but at the time, no one was promising NZS reform (and they still aren't!!!).
Anyway, with the last election... it wasn't so much wanting to get rid of Helen that swung us away from Winnie, as it was wanting to get rid of Jeanette, Sue and the red/green (as opposed to green/green) legislation they were clogging up the Parliament with... so, we abandoned Winnie and voted John - in the hope that Helen wouldn't be able to form a coalition. How's that for an MMP result.
You could say ours was a protest vote against the Greens - which makes me smile when I think this time I'm likely to give them two ticks - and it isn't even a protest... I actually think they might be the best of the lot! But, if Winston looks to be at or near the threshold I might reconsider.
One thing for sure, neither of the two main parties will even be a consideration. To have that amount of potential to effect change at a time when it is desperately needed - and to squander that opportunity is unforgivable.
How about......
we ackowledge strong downside risks, and whilst some of these matters are out of our control we are actively developing a policy package which we will announce prior to the election which strengthens our resilience in the face of these global risks.
Rather than a shrug and wait and see.
Appalling leadership
Brilliant, they are either going to look like a possum trapped in the headlights, or liars when the shtf. Dr copper may be wrong, technical analysis may be wrong, the doomsayers may be wrong, but the maths never lies.
The "Prime" Minister must be hoping like hell that the s doesn't htf before the election. Keep it up interest.co.nz
"Basel Brush III | 26 Oct 11, 12:41pm Good on you..I assume you are now overseas and will not be contributing to the other 80%+ of your education costs through the NZ tax system"
You're right I am in Australia
Well with a post grad degree in Science I could stay back in NZ and work in a customer services centre somewhere. Labour Govt had a lot to answer for in their 9 years of rulings by making NZ a low cost highly skills environment! I would stay back if I had an accountancy degree.. go figure!
Businesses listen to banks for the economic outlook, and the banks then query businesses on their outlook?
um.....
I think the chances of seeing much OCR hike inside 12~18months is way smaller than even staying at the present OCR.....I think its more likely we will sse a OCR drop inside 12~18 months myself.
regards
Moody's confirmation of NZ's triple- A credit rating so close to the election might be considered partisan.
But that would not worry Warren Buffet (Berkshire Hathaway), Moody's largest shareholder.
He who boldly proclaimed, “There’s class warfare, all right. But it’s my class, the rich class, that’s making war, and we’re winning.”
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