Finance Minister Bill English has poured more cold water on the prospects for recovery, saying the Canterbury earthquake, a lower than expected global outlook and a faster than expected adjustment by households away from consumption, will flow through into a lower growth forecast for the year to March 2011.
The government would therefore have to run higher than forecast budget deficits in the short-term, English said. The government is currently forecasting a NZ$13.3 billion cash deficit for the current financial year.
"Since 2008 the progress we've made has had a positive impact on the Government's books," English said in speech to Cullen Law this morning.
"However the weaker than expected global outlook and our faster than expected adjustment away from consumption is likely to flow into the next set of Treasury forecasts in the Half Year Economic and Fiscal Update on December 14," he said
"We've already seen tax revenue below expectations in the first three months of the financial year as people choose to save more. Slightly lower than forecast growth plus the effect of the Canterbury earthquake has flowed into slightly higher debt."
That was being partly offset by export growth, but it was likely those factors would flow into a lower growth forecast for the year to March 2011, before a rebound in the year to March 2012, English said.
Combined with the fiscal impacts of the Canterbury earthquake, this would mean higher forecast deficits in the short term, before improvements showed through, he said.
"As I've said, the Government cannot run large deficits indefinitely. That is why we are taking steps to contain debt accumulation, keep finance costs down, and make sure we are ready for the next shock," English said.
"We are committed to getting back to surplus by 2016. We still have a significant medium term challenge to achieve that, so in many ways restraint in the public sector has only just started," he said.
PSA to cost Govt NZ$25 million, industry NZ$25 million and growers NZ$25 million
Meanwhile later in the morning, Biosecurity Minister David Carter said the Government would provide NZ$25 million to help tackle the Psa kiwifruit disease subject to a dollar-for-dollar match from the kiwifruit industry, making it a NZ$50 million package. Carter said he was confident the industry would commit to its side of the deal, and that the industry was happy with the package.
The government's NZ$25 million would come from a contingency fund, which would be substantially reduced by this action, Carter said. He expected a considerable amount of this to be used in "the next month or two". He ruled out any further government contributions for the Psa issue.
On top of the NZ$50 million, Carter said he expected Kiwifruit growers themselves to have to absorb further costs of around NZ$25 million in lost earnings over the next two or three years, bringing total costs to around NZ$75 million.
Here is the release from English's office:
A sustainable economic recovery is underway and will pick up momentum next year as the Government continues to roll out its economic plan, Finance Minister Bill English says.
"The economy is growing, unemployment is dropping and our exports are increasing. About 40,000 more people are in jobs than this time last year," Mr English said in a speech to a Cullen Employment Law Firm breakfast.
"And all of this is happening as we rebalance our economy on to a more sustainable footing - away from borrowing and consumption, towards saving, investment and exports.
"This trend towards increased household saving creates a strong platform for faster economic growth in the medium and longer term. That is the only way we can create the jobs, higher incomes and the better living standards Kiwis deserve.
"However it means the recovery will not be driven by sectors like retail and housing, leading to a flatter domestic economy in the short term.
"That trend, alongside a weaker global outlook, is likely to flow into a lower growth forecast for the year to March 2011 in the Half Year Economic and Fiscal Update next month, before a rebound in the following year.
"Combined with the fiscal impacts of the Canterbury earthquake, it will mean slightly higher deficits in the short term before improvements show through.
"This reinforces the need for sensible financial management and ongoing discipline in Government spending if we are to get back to surplus by 2016. We still have a significant medium term challenge to achieve that.
"Over the past two years, we've moved nearly $4 billion of spending into frontline public services such as health, education and law and order, and all major departments will face significant change over the next four years, as we lift productivity growth in the public sector."
Mr English said the Government's first Investment Statement, which will be published with the half-year update, would help ensure discipline was applied equally to the Government's operating and capital spending.
"The Crown is the largest single investor in a capital constrained economy. It is therefore vital that the Crown invests its capital efficiently.
"The Investment Statement will clearly set out the Crown's assets and liabilities, identify emerging issues and state how the Government plans to manage its large and growing investment in taxpayers' assets.
"We believe this level of transparent information – in a regular publication - will allow the public to demand a much greater level of accountability from the Government and lead to significantly better decision-making across the public sector," Mr English said.
(Updates with more comments from speech, release & more on David Carter on Psa).
28 Comments
Great stuff Alex.
The government has a real task on its hands now.
How will the economy improve and the budget deficit start falling when households are still deleveraging?
Why should they magically stop next year?
Household debt to disposable income is still around 154%, well up on the 100% 'normal' levels we saw in 2000 before the housing boom. http://rbnz.govt.nz/keygraphs/Fig5.html
This is going to take years. It's not a 6 month job.
cheers
Bernard
Just thinking about that BH.....sure the totals still look bad....
But, do the totals actually still represent what is happening ....If broken down (and I have no idea what they would break down to)....one may find there are a lot of households who have deleveraged one hell of a lot already, enough or more than enough to maybe start to spend a little....Then there are a few or less households that where way over leveraged, have reduced, but still well over leveraged.......and what about those mortgagee sales..those people still have debit big debit and will have for maybe decades...
Are there enough of these people to actually drag the overall ave numbers up and give a wrong impression?
We saw and still see this sort of thing in house price stats, even thu QV do have a formula to compensate, it doesnt compensate anywhere enough to meet reality...
Stats are all well and good, but when big change takes place, usually the basis upon which those stats where made dramatically changes.
So the Stats may indicate contrary to English statement, but there could well be a large (and I suspect there is) population base that nearly have or have deleveraged enough to start spending.
Bernard
I often see coments relating to 'household debt to disposable income".
How is the 154% calculated.Does this debt include mortgages or is just made up of credit cards, hire purchase, overdrafts , leases on cars etc ??
Can you give me an example of the average person who has an income of 70K and 154%debt to disposable income.WHat would this persons situation look like?Average credit card balance etc, what is his/hers disposable income ??How much to service interest only?
Are you saying the average person would have to spend no disposable income for one and half years to clear their debts?Yikes...no saturday morning coffess,no sky tv,no movies or nights out with friends...yikes
If this person doesnt pay off their debt then how much interest are they paying to Aussie banks for their lifestyle which can only get more of a problem??
Nothing new - classical "Patchwork Economy" for years !
As I proposed many time New Zealand definitely needs a new economic model – a profound new strategy -> including a culture change.
...and you guys here - just carry on with the same culture - going around the circle -with more patchwork ideas - great !
One of the problem is the PM with his smiley policy “Wait and See” or was it “See and Wait” – probably both ?
Nationals - Aussie PR doctrine : http://www.indymedia.org.nz/article/77144/twisting-reality-john-keys-co…
Have you heard people, how many “hidden world wars” are actually already happening. But our parties in parliament still have the luxury to talk about all sorts of BS – hitting each other, playing Kindergarden - in stead of working together – reforming our economy – for a better NZ.
I know ! I heard a piece from parliament , aired on Radio National : Trevour Mallard was flapping on about people applying for $ 110 000 per annum jobs / being laid off within 90 days / and Pansy Wong .............. And I thought to meself , " hells bells , Gummy , these space-cadets are gonna be back in power next year . "
New Labour/ National/ Act party etc. recruitment - imported like most everything - of course:
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10688446
One of the (hidden) wars:
Cybercrime experts have found proof that China hijacked the internet for 18 minutes last April. China absorbed 15 per cent of the traffic from US military and civilian networks, as well as from other Western countries, a massive chunk. Nobody knows why.
http://www.gizmodo.com.au/2010/11/chinas-secret-internet-hijacking-uncovered/
New Economic Model - easy.
No interest, no debt. Havee no money, no getee.
Rigid enforcement of environmental standards - our fisheries quota being a pointer as to what is needed. Sorry, but that needs front-line policing. Too many cowboys out there, and too much greed.
Which leaves a debate about how to get to equillibrium, in terms of population vs resource depletion/regeneration.
"Take years" Bernard?
an infinite number, I suggest.
I absolutely agree that the govt must trim it's cloth (not by privatisation, that's just an argument about who owns which sliding deckchair) and that this inevitably must reflect as lower salaries/wages.
The knock-on, of course, will be felt through all the rest, via less spending by the public servants.
What makes me laugh, is that folk like me were predicting what English has apparently just cottoned on to, two and three decades ago.
We don't pick a return to BAU, though. Neither, by his China comment, does Key.
Well at least he's stopped using the tired old '6 part strategy' fluff and made no mention of catching up with aus........
So much for all the banking BS about 4.2% GDP next year and this being a time to borrow and buy price bloated property.........
The peasants appear to be learning of their fate if they leave their deleveraging too late.......
Anyone still believe the stats nz employment data now.....just part of the propaganda spewing from wgtn........
Face facts....until the ponzi bubble debt burden is slashed away...there will be no surplus income worth saving and investing.....and English continues to extend govt debt by a billion a month.....now all riding on a gamble that a mystical recovery can take place turning Noddy into a balanced economy and making $250,ooo,ooo,ooo of debts go poof into nothing.
The fatcat state serpents will love this bit...." all major departments will face significant change over the next four years, "....because it promises all the Sir Humphreys will be getting big fat salary rises from the Higher Salaries and other rorts Commission, members of the same old boys club in wgtn.
Meanwhile the piigs fiasco promises to blossom into higher credit costs ...and we bloodywell know what that will mean for the fools still holding a share of the monster debt burden.
Alex...any chance of producing a table showing liabilities/costs for rotting homes...rotting schools...earthquake....PSA....storm damage...SCF QE handouts..Other finance company bailouts costs....potential costs...a table that updates and holds not just the govt spin on the burden but also independent estimates???
MAF allowed a pollen import from a country with the PSA bug. NZ historically never imports pollen as it is a plant material and is well known to be potentially dangerous to plants. Why the muppets did this we will never know. an 1.5 billion dollar per year export industry (and growing forecast 3 billion in 10yrs) could be finished. The country is stuffed with people like that in control of our boarders. Next will be foot an mouth an then see what happens to gulliable ole NZ.
Kiwifruit 20% of GDP of the bay of plenty
7000 people employed directly and lots more indirectly .
10000 people extra hired during harvest season.
Let's just assume for a moment that English had said: "Party's on brothers and sisters! We're 50 bills in the BLACK!!!" Hands up who thinks the average Kiwi would suddenly revert fromSid Squirrel to Jack Russell?
Allan Bollard get's exactly what he and his predecesors wants/wanted and he's saying now that he's not tooled up enough to turn the ship around because....we're doing what he wanted?
Kiwis are a trusting lot but the real story since the GFC has been a quantum shift in individual responsibility. IE As a nation we had none, now we're getting some. Crikey! What's next? Maybe we'll realise that any fool can run an investment, business, economy on an upward trend. Oh wait.. I forgot...you need to pay the fool gazzilions because someone with common sense can't make money on an upward trend. And we all know that someone who makes gazillions knows what they're doing, don't we?
If the Govt want to increase production, all it has to do is cut costs to producers, simple just bloody get on and do it, this sort of crap has already failed and will fail again.
"However it means the recovery will not be driven by sectors like retail and housing, leading to a flatter domestic economy in the short term.
Whats housing and retail got to do with wealth creation, is he talking about householders taking on MORE debt.
heres the problem
"The Crown is the largest single investor in a capital constrained economy. It is therefore vital that the Crown invests its capital efficiently.
How can the crown invest efficiently? civil servants get an extra weeks holiday more than the rest of us, so lets start there. This economy will go down the gurgler if we sit and watch while exports crash and costs increase along with unemployment. It looks like most of the inflation we are getting is from increasing Govt costs like, Vehicle tax, fuel tax, Kyoto,GST,rates and so on.
grow some and get on with the job.
Governemnt borrowing at $250mil a week... unbelievable. Get out of debt by... by taking on more debt?! Is this what passes for logic these days?
I guess the current government could never make the tough cuts that are necessary because they would never have had the backing of the public. Things weren't (and still aren't) quite bad enough out there so that the public could stomach it. We've been conditioned to be a bunch of fat cats but the milk is running out!
By the time the public wake up and can see that it needs to happen, that we need to make some serious cuts, it'll be too late for the government to at that time to do anything about it.
Some people are calling out for leadership.. what we really need a martyr.
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