The government's Budget on Thursday will forecast strong employment growth and wage growth that will "well and truly outstrip inflation," Prime Minister John Key says.
Key made the comments at his weekly post-cabinet press conference on Monday.
Meanwhile, although Key would not say when the government Budget would return to surplus, he said if Treasury spending forecasts made in December were followed and the effect of the Christchurch earthquake was included in that modelling, a surplus would be achieved in 2016/17 and net debt would peak at 34% of GDP.
Since December the government was doing better than that, having decided to implement a budget with no overall increase in nominal spending from last year, rather than increase spending by a previously planned NZ$1.1 billion, Key said.
Strong growth forecast
Budget 2011 was an important step in rebalancing the economy, Key said.
“The budget will forecast strong wage growth and strong employment growth over the next couple of years. You’ll have to wait until Thursday to see the exact numbers, but what I can say is that the growth in average weekly wages over the next few years is expected to well and truly outstrip inflation," he said.
"Treasury are also forecasting strong employment growth."
However, Key would not be drawn into exact figures.
See Bernard Hickey's piece attacking Treasury forecasts here.
Very few, if any, of these jobs would come from the back office of the public sector.
“The Budget will continue our drive for efficiency in government administration. That is consistent with our plan to rebalance the economy towards the internationally competitive sectors of the economy and away from domestically focused, and in particular government-focussed, sectors," Key said.
"We’ve set an overall fiscal savings target in the budget that we'll realise over the three years starting 1 July 2012, and this figure will be reflected in the budget. I think you’ll be surprised about how much we are looking to save overall from a couple of public sector initiatives. Targets for individual agencies will be finalised after the budget, based on their size and current funding," he said.
It would then be over to departmental chief executives to identify how exactly to meet these targets, although government would put in a number of safeguards to protect the quality of frontline services, Key said.
Surplus track earlier than 2016/17?
Meanwhile, Key said the surplus track in Thursday's Budget should be compared with an estimate that surplus would come in 2016/17 if government were to stick to Treasury's December forecasts, while factoring in the February 22 Christchurch earthquake.
"The half year update (HYEFU) last December showed the government returning to a meaningful surplus in 2015/16 – that was the previous benchmark," Key said.
Net government debt was forecast to peak at 28.5% in 2015 according to the December forecasts.
"Since then of course we’ve had the second Canterbury earthquake and slower than expected growth. These events have changed the outlook for both debt and deficits," Key said.
"If we’d stuck to the fiscal script as written in the HYEFU, with no additional savings, we’d now be expecting to get back to a meaningful surplus a year later, so that would now be 2016/17, and debt would be peaking at 34% of GDP," he said.
"The point I want to emphasise quite strongly here is that everything we do in this week’s budget needs to be compared with the current baseline – against returning to surpluses in 2016/17, and having debt reach 34% of GDP, rather than what was in the HYFU."
"Clearly we're doing better than that," Key said.
Wage growth 4-5% p.a?
Treasury predictions in Budget 2011 were that New Zealanders would be earning more, at a faster rate than the inflation rate, and getting to keep more of it, Key said.
Asked whether that meant wage growth of 4-5% a year, Key replied: “You’ll have to wait until Thursday, but that might be an educated guess.”
Meanwhile Key brushed aside critisim of previously too-optimistic Treasury forecasts.
“We all acknowledge that there’s a degree of putting one’s finger in the air when it comes to these things. The world didn’t predict that we’d have such a melt-down in Portugal and Greece, and the problems with Spain in the latter part of 2010. That reflected [in] and reduced growth right across the world, not just singularly in New Zealand," Key said.
"But I think there are a lot of factors that are now indicating a stronger period of growth. In New Zealand we obviously have the Rugby World Cup, clearly we’re going to have the rebuilding phase for Christchurch. We’re also starting to see some very positive signs coming out of the business community, and overall our commodity prices remain very high," he said.
"So there are always risks, as I’ve said before, but our expectation is that Treasury are probably on the money.”
See Bernard Hickey's piece attacking Treasury forecasts here
Net debt above or below 30% of GDP?
Meanwhile, asked whether the budget would be in line with the government’s stated wish for net debt to not rise above 30% of GDP, Key would not confirm or deny that, but said he had made it very clear as to what he thought the ratings agencies’ expectations of New Zealand were, and what he thought was important to achieve.
In an interview with The Economist magazine earlier this month, Key said the government had essentially promised the ratings agencies that net government debt would not rise above 30% of GDP, although Finance Minister Bill English had warned in March that net debt could rise above that threshold.
The government had a responsibility to keep our debt under control, Key said.
"Everyone accepts that we had to use the [government] balance sheet for a couple of things. Firstly, the front-end loading of [debt for] the costs of Christchurch, and secondly you had some big spending programmes which we’ve been getting under control, and Budget 2011 does a good job in getting those programmes on a sustainable basis," he said.
"Also I think we did the right thing actually – using the balance sheet to actually stimulate the economy."
The budget deficit before gains and losses is expected to be as high as NZ$17 billion for the current year ending June 30. The government has increased it borrowing programme for the year from NZ$13.5 billion forecast in December to NZ$20 billion, or 10% of GDP, to cover this year's deficit, with the balance to be put toward next year's shortfall, expected to be half that of the current year.
"For quite some time now I’ve been saying, look, 30% is, in my view, where it [net debt as a proportion of GDP] should stop," Key said..
"And that’s partly because the rating agencies...generally put countries in three categories: 0-30%, they are very comfortable with government debt at those levels; 30%+ to 70%, they think will have some impact on growth but they start getting concerned; and above 70% they’re very concerned,” he said.
“My expectations are that we’ve got a good, solid pathway both back to surplus and a good pathway for controlling debt. I think if one sees that in the context of everything the government had to deal with – two earthquakes, a global financial crisis, the need to stimulate the economy, the bailout of the finance sector, then I think we have got a very clear pathway. The countries I visited in Europe, I’m not sure they could actually point to that sort of pathway.”
(Updates with comments debt, on wage growth, surplus track.)
41 Comments
"who is it they have hired to put the gloss on Jk's BS?"
Wolly, you may have this back to front. You engage these sorts of firms to win elections for you so they tell you what to spin. JK is not leading this though he may believe he is - he will be doing what he is told. He is a weak leader so is unlikely to have a great problem with that. And he will still control the purse strings even if not the message.
Government bad example for job creation with the prospect of wage increase !
Yes, Prime minister – you are importing high tech products value billions and at the same time exporting NZeducated, clever brains value billions – how stupid !
With such policies the fall of the NZ standard of living is imminent. The wider population is getting poorer and life more expensive.
I’m not sure if policymakers have taken worldwide political, economic and climate change events into consideration. I rather think what we see next is a "broom" and not a "boom" economy – back to recession by 2012 or worse.
Kunst, it is not a Government policy to import high tech products or to export people. These are decisions taken by private individuals considering how best to use their own resources, be that their money or their skills. What action do you think John Key and the Government should take to make them act differently?
MdM
Allocating infrastructure needs in sectors like Energy, Transport and Telecommunication to NZcompanies the NZworkforce is a must, not only to keep talented, skilful Kiwis here, but to develop solid, sustainable production in support of the private sector.
Unfortunately this isn’t the case and thousands of especially young Kiwis have to leave NZ, because there aren’t enough decent jobs.
Manage the exchange rate so they see higher prices for imports.
That's the only way to lower the excessive import bill.
When our terms of trade are at a record high yet still we run a trade deficit - When we have not run a current account surplus in over 40 years - the currency is overvalued.
So why not follow Singapore's lead - no Reserve Bank act targeting inflation. Target the exchange rate instead.
Hasn't hurt them - GDP growth of over 18 % and massive surpluses - which is why they can afford to buy foreign assets.
There are other options for NZ.
And then look at this statement:
"We’ve set an overall fiscal savings target in the budget that we'll realise over the three years starting 1 July 2012, and this figure will be reflected in the budget. I think you’ll be surprised about how much we are looking to save overall from a couple of public sector initiatives. Targets for individual agencies will be finalised after the budget, based on their size and current funding," he said.
It would then be over to departmental chief executives to identify how exactly to meet these targets, although government would put in a number of safeguards to protect the quality of frontline services, Key said.
What?
Here you have the PM saying government and cabinet ministers will not be doing anything in terms of policy direction. - 'Here's some money, you decide what to do with it.'
Do National's Cabinet ministers not know what they want their departments to be doing with the little money they have?
As your previous article highlighted, this government has only spent over $880 million on policy related advice for fiscal year 2011. And what to do with it? Not much it seems.
Treasury here might like to consider their Aussie counterparts approach to forecasting. http://www.smh.com.au/business/who-do-you-trust--the-rba-or-treasury-20110516-1eozs.html
Yes and it wont change....the FED will keep their OCR down, that will keep commodities prices up....so CPI stays up, which then will feed into core inflation and depress jobs and wages....not to mention peak oil's effects...
Treasury....no if someone adked me to save real money sacking most of those clowns would be the very first thing....they are always wrong so their value is limited....IRD do a better job in several areas, policy they suck at....
regards
Hi Elley,
The forecasts are from Treasury, but they haven't been that close to the mark lately. The fact Key won't even tell us what the forecasts are, even though he'll tell us that they're there could mean a number of things.
a) this will be the only good news in the budget, so better hold till Thursday
b) once we see the numbers we'll be able to mount an argument that they aren't actually strong
c) National is worried about rising costs of living and is desparately trying to find a way to assure people it'll be ok, because their wages will be going up, so just hang in there.
Strong Employment growth must mean that the Unemployed will be either Working For Families more or we will be employing more beaureaucrats to work for those working the system.
Either way someone HAS to borrow a lot more to pork the inflation targets of growth.
I wonder who will get the BILL.
Farming out the jobs to the Farming Community will not help Font-error projections based on the levels quoted today.
Maybe the Spinners and Weavers have something up their sleeves that we are not privvy too.
Ducking and Diving offshore may benefit some if playing the money go round, but relying on the lying turds in any country already underwater already may be a road to ruin if ye get stuck with the Euro and con-sequently...... the Bill.
Likewise a dollar.
Lucky that our roads to ruin may be all around Auckland. At least the Bus Lanes will pay their way and the clampers will benefit from the overcharged parking mistakes and avoiders.
Avoiding the bill there is easy. The clampers are already on the wrong side of the law. Not that that ever stoppped em charging like a wounded bull and even more pertinent.....a politicians expense account.
(Mana from heaven and due diligence is most appropriate as they appropriate even more funds to feather their cloaks and look daggers at those who oppose em).
When we have a pick of a poor bunch, it is no small wonder that the thieves are running the pork shop...into the ground.
It is a crazy world, where the thives who really need locking up, point out that we have too many prisons and prisoners for the size of the country to sustain em. Their idea of a bail-out is others idea of a bail-out and get out of free card as they have the monopoly on the greed....it appears to me.
The only sure thing is that someone is stealing from someone else these days and you can bet yer bottom dollar, they are already in power, raping and pillaging their way around the world.
No small wonder they call it the Inter- NATIONAL...munny-tarry fund. What an example.??!!.
We have our own version here, they are not even adverse to stealing from errant rugby players and the church, though there cannot be much left to appropriate.
The driving force here in No zeal-and is akin to others peddling their goods in the Mississippiiiiiii.....so much underwater, that no matter what you do, they will find a way to sink you and not them
Since when has JK been a " right winger " ? ........ Us true right of centre voters are exasperated at his toadying to the idioticly dumb vote buying policies of Michael Cullen , the lefties .......
...... 12 years of Labour's failed policies , 1999-2011 , has led us where ? ........ No child poverty ? ....... No kiddies being smacked or murdered ? ...... Affordable housing ? ........... A current account surplus ?
If you want to play that game GBH, what's been the dominant economic theory the last generation throughout the West? Rightwing laissez-faire economics. The result? The most servere economic crisis since the Great Depression era in the early 20th Century, which was also the result of laissez-faire economics.
Remember Helen Clark was part of the Labour Government under Lange/Roger Douglas who slammed through all the neocon reforms and continued by the Nats in the 90s, resulting in a massive inequality of wealth and years of economic stagnation.
So lefties could make the same kind of claim you do GBH, that the 5th Labour Government lead by Helen Clark wasn't truly left.
I wasn't referring to the West , far too many cowboys there . But here in Godzone , Helen Clark's government increased spending by 50 % over just 9 years , far outstripping growth in the nation's GDP . They ate the economy !
........... Michael Cullen nationalised Kiwi-Rail , and set up Kiwi-Bank . And arbitrarily decided to block a partial take-over of a publicly listed company , Auckland Airport .
Hardly right wing " lazy-fairy " economics .
JK will have a lot of work to do if the Nats want to keep the votes they got in 2008 from the voters who reckoned Labour was stale after 9 years. Smiley Wavey cannot administer the medicine unless its cough syrup.
Where will those votes go?
Not to ACT
Greens? No
Winston? Maybe a few in protest
Maori or Mana? Let them have their own tug-of-war.
Interesting puzzle.
Even as he speaks, the International financial and political situation changes (and not for the better for NZInc). It is NOT possible to accurately forecast 1 month ahead let alone several years!!.
To have saddled oneself with so many commitments to stupidy in an effort to appeal to all factions in NZ against this volitile environment is mind blowing and it is going to bite him and the rest of us in the backside. It also seriously under estimates the electorate who have been expecting major domestic policy changes driven by international events.
All or at least a majority of us understand the need for a balanced personal budget and the huge task if one wanted to buck the trend of your earnings and borrow still more money. He has to bite the bullet and tell the country that we are not going to get out of the woods by just making wild guesses at future possible but unlikely growth figures.
Sorry John but this is where you go wrong.... "It also seriously under estimates the electorate"....in fact the govt is reading the electorate like a guide to remaining in office.
The problem with this economy is the electorate!...It was only by promising not to change WFF and the other Labour freebee pork offerings that National were able to rid the country of Clark and Cullen. That is the true measure of the "electorate" you refer to.
It will not be until after November, when the pre 08 election promises were made for this term, that National in office will be able to dismantle Clark's awful legacy that is destroying this economy. Then the electorate will be tested in 2017 to discover whether it wants to remain in a state of benefit serfdom, or move on to individualism where the state shrinks in size and cost, leaving people with better opportunities and higher disposable incomes.
Throughout the next 6 years Labour and others will fight to retain the system that promises them power in office and control over the lives of so many.
Whatever the merits - or otherwise - of WFF, the last Labour govt left NZ in a healthy economic state. Yet within a single term National have all but bankrupted the country.
Your problem Wolly is that you always prefer to bash Labour for something, anything, rather than admit they were no worse than this current National govt, and in most respects far better.
Even when National are at their very worst (let's sincerely hope they are), you cannot bring yourself not to twist the issue at hand and segue into a nonsensical tangent in an attempt to bash Labour.
We all noticed that, as expected, you failed to refute the fact that this National govt have driven NZ into a deficit nightmare.
And unlike yourself, I don't particularly care for politicians or political parties. Labour, National, ACT, NZ First, whoever, whatever -- all the same, and not to be trusted.
You, on the other hand, will defend the Nats, come-what-may, while hoping to find any real or imagined transgression of the Labour party and its members to crow about.
This is what shall always distinguish you from intelligent and mature adults.
malarkey you really are one of a kind....first off this useless govt jumped into a vehicle already going over a cliff thanks to the idiots who wasted 9 years at the pig trough under that painter Clark...and I don't give a rat's for any of them....
I guess you see yourself as an intelligent and mature adult....harrrrrrrrrrrrhahahahahaaaaa
What you are not being told......................while this comment is about the UK, readers will recognise the NZ shadow.
"after spending the whole of 2010 pumping out always temporarily high inflation now the Bank of England is getting ready for shock and awe 5% CPI inflation statements, add to this the Deputy Governor of the Bank of England going on to blame speculators for the surge in commodity prices, and intends on wasting millions in tax payers money by taking part in an international study into the impact of commodity price speculation on inflation.
All of this is smoke and mirrors propaganda, why ? Because the Government / Bank of England Wants / Needs HIGH Inflation, and has done so since the start of the financial crisis several years ago, as I will illustrate in this article, high real inflation remains the ONLY response that the Government and it's central bank have to deal with Britain's debt crisis (ever increasing debt mountain) as the alternative is to go down the same path as bankrupting Greece of a deflationary spiral, it's just that the powers that be perceive (correctly) that an inflationary spiral as being more palatable to the electorate / general population as they have nominal statistics thrown at them that paint a picture of everything getting better when the truth as personally experienced is the exact opposite in real terms"
http://www.marketoracle.co.uk/Article28153.html
Debasement of the Kiwi$ is the underlying govt /RBNZ policy of choice.
Wolly "Debasement of the Kiwi$ is the underlying govt /RBNZ policy of choice."
It would certainly seem so. But even with 5% inflation you will never get on top of the debt (private+Government) which is rising by at least 10% of GDP/year.
When our currency was introduced in 1967 you could buy with one cent what now costs 10 cents. Just a coincidence the respective coins look so similar? The 90% loss of value in a little over forty years is an epic failure by the RBNZ of one of it's key mandates - the preservation of the currency.
The last forty years have also seen year on year increases in nominal debt at about double the increases in nominal GDP. Our money system demands ever expanding debt, has to be or the whole economy crashes - so the Government is now going into debt instead of the tapped out households, businesses and farmers. How long can the whole thing hang together.
JK "growth in average weekly wages over the next few years is expected to well and truly outstrip inflation"
Sounds great John, any actual facts to back up this expectation? Seems like there is overcapacity almost everywhere you look, the Government are still letting in heaps of immigrants, unions are weak and households super cautious - what will drive these wage rises? Pure fantasy!
,
"The preservation of the currency" is what the RBNZ wants Kiwi Kev to believe is the policy...it's all about the quality of the deception KD and that has been born out by JK's latest blather about wages expectations. Treasury, the Reserve Bank and Govt are all geared up to bullshit the public. The bank economists join in the game as do govt departments.
The first casualty of economic failure is the truth.
Jk is very smart...this is the one time where they will add in the Canterbury stats..on job..and wage growth..leave there stats out of anything else though. 15,000 jobs and fletcher have just set a $45-65 dollar an hour benchmark...well done JK . It's a pity they have probably under estimated the cost of the Earthquake.
Key's projections on wage growth don't seem to match up with reality according to this Mercer report.
See below:
Despite a rising cost of living, New Zealand’s patchy economic recovery has seen pay increases stall at a median of 2.5% over the past six months, and are not expected to go any higher next year, according to a Mercer remuneration survey.
Mercer’s Market Issues Survey of pay trends at 91 organisations reveals salary increases, after peaking at 5.2% in early 2009, have dipped to 2.5% at February 2011.
http://www.mercer.co.nz/print.htm?indContentType=100&idContent=1412900&…
Of course they dont match up....his credibility just flew out the window, this is a second rate promise of trust me today and you'll get jam tomorrow..........The very reason the OCR etc is low is because core inflation is steady and low because ppl cant get pay increases....start to see 5%+ wage increases and core will rise and then the OCR will take off.....
regards
Amanda - here's a couple of backgrounders :
http://earlywarn.blogspot.com/2011/05/interesting-contrast.html
http://www.chrismartenson.com/blog/why-growth-dead/57764
I love the doubling-time graph.........
and:
http://earlywarn.blogspot.com/2011/05/other-commodities-and-recessions…
the scatter-plot graphs are interesting.
Growth? You'd have to be a gambler at this point. Me, I reckon there's no more doubling left, so it's time to quit.
Not sure what planet John Key is on but I need some of whatever he's on !
Several of my friends who are accountants like myself all agree that we cannot see exactly how the NZ economy is going to recover & grow anytime soon.
As for wages growth, I came back from Aussie with my husband this time last year and am earning pretty much the same as what I was earning in early 2007 before we left for Sydney in spite of an extra 3 years of experience at multinational companies and some great references. However I consider myself lucky as when I was looking for work last winter I was frequently told agents had 100's of candidates on databases available to work so at least I have a reasonable job.
NZ is going backwards fast and sinking like a lead balloon. The difference in the past 4-5 years is huge. What most people don't realise (don't care ?) is that this country is in danger of going rapidly broke very fast. We should all keep our fingers crossed that we don't receive a further credit downgrade anytime soon. What are the government acutally spending $300m a week on ??
As far as I can see, National are doing absolutely nothing to stop the rot - John Key talks a good game, very charismatic with the media, full of his own self-importance but has done nohting of any real substance for the nation since coming to power and appears to have no idea how to boost the economy. As for the idea on NZ becoming a financial services hub - hullo ?!! - this is about 30 years too late in the making !
My recommendation to the working populus is to get out now and move offshore - sell up while you can whilst house prices are still holidng up and before the credit downgrade happens (which it will - just a matter of time). Yes, Australia is more of a rat race in the big cities where you do longer hours and more expensive housing, but at least you have a future there with lots of job opportunities at decent sized companies and a decent salary & super (where you might actually be able to do soemthing in your retirement rather than retiring on meagre Kiwisaver accounts). Plus the lifestyle is not dissimilar to here, weather better and you can easily come across for the weekend and to see family.
We'll be going back as soon as my current contract finishes early next year.
One of the most discussed problems lately has been the growing national debt, and a popular belief regarding how to fix it is to start taxing the prosperous at a higher rate. There aren't enough wealthy individuals to go around for taxing them to do a whole lot. The country might need short term loans if possible to get out of debt. Republicans have lost ground in public trust to deal with both issues, economy and deficit, now trailing Obama by 12- and 9-point margins, respectively.
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