PM John Key and Finance Minister Bill English spend weekend defending budget wage, employment and growth forecasts

Prime Minister John Key and with Finance Minister Bill English have spent the weekend and Monday morning defending Treasury's forecasts in last week's budget.

On TV1's Breakfast programme, Key recognised risks to growth such as a possible inflation problem in China and high oil prices, but said on balance, Treasury's forecasts looked alright to him.

Key said he was surprised by the critisism of Treasury's forecasts following Thursday's Budget.

"The Herald’s been running that line and it’s not a very effective line and not actually accurate," Key said.

"If you have a look at it, the Treasury are about in the middle of the pack of the forecasters. All of the banks – ANZ, Westpac, those kind of guys – they all have their own economists. They’ve been largely more optimistic, actually, than the Treasury. NZIER - independant forecaster - again, about where the Treasury is. IMF I think is slightly above the Treasury," he said.

"So they’re quite in the middle of the pack.”

It was always difficult to do forecasting in any conditions, but it had been more difficult over the last few years.

“That’s because when you have a massive thing like the Global Financial Crisis, it’s very unchartered territory and no one was quite sure the impact it would have, and it did have second round implications," Key said.

"Last year we expected the world to be stronger, actually with the meltdown in Portugal and Greece and Spain, it wasn’t. So that threw the numbers out a bit. But there’s more predictability here now. I think we’re on firmer footing,” he said.

“There’s always risks in any forecasts. High inflation in China could lead to a bout of inflation around the world, higher oil prices could lead to a reduction in consumption around the world. But overall, on balance, I think they look about right.”

Meanwhile, appearing on TVNZ's Q&A programme on Sunday, English defended the government's reasons for optimism in terms of jobs and wage growth:

GUYON         And it’s all about jobs, isn’t it? I mean, this is what you’re promising. If you go back to your last Budget, do you remember how many jobs you promised in the 2010 Budget?

BILL    Uh, no, I can’t recall that—

GUYON         Well, I can help you out here. I’ll quote you. This is 2010. ‘Treasury forecasts show steady growth of around 3% over each of the next four years. This growth will raise income of the average household by $7000 a year and create 170,000 jobs.’ That’s you from 2010. I mean, do you just keep repeating this number and hoping it will happen?

BILL    Uh, no, that’s not correct. Clearly, there’s been less in the last 12 months than what was expected in the last Budget. But in the 15 years from 1990 to 2005, this economy generated 35,000 jobs per year. So we’ve done it before; it can happen again. There are good reasons to be confident—

GUYON         Would you stake your reputation on these forecasts, minister?

BILL    Well, the Treasury’s forecasting—

GUYON         Yes, and would you stake your reputation on them?

BILL    The Treasury’s forecasts are done independent of the government. They’re about middle of the pack, and I do share the sense of confidence behind those forecasts. We’ve got the highest export prices in a generation, we’ve got the Canterbury rebuild ahead of us, we’re going to see a generalised lift in spending—

GUYON         It’s pretty optimistic, given you promised 170,000 jobs last year, with respect, minister, and people forgot about it. You’re now saying 170,000 more this time, and you’re now optimistic about it.

BILL    I’m just explaining to you the reasons for that optimism if you would let me finish. We’ve got the highest export prices in a generation. We have the rebuild of Christchurch coming. There’s $15 billion to $20 billion that has to be spent. Those are real jobs that will employ people and pay them real wages. You’re going to see a generalised lift in spending and retail and the construction sector around housing. At once, people feel like they’ve got their debt under control.

Now, that process has been a bit longer than we expected, and that is because the people have reacted pretty sensibly, actually, to the fact that they accumulated too much debt in the last decade. So we think people are getting into a more confident way of thinking, and over the next couple of years, this economy is going to lift. Now, whether it exactly matches a forecast – well, forecasters don’t make the economy grow. What makes it grow are the people sitting in their homes and their businesses, building their confidence, and one of the things they can be confident about from this Budget is that interest rates will be lower for longer, and that will help growth.

GUYON         Two of the main drivers of growth in the shorter term are the rebuild of Christchurch, which you’ve mentioned, and the Rugby World Cup – obviously a stimulus. Isn’t it a bit sad that we’ve got to rely on disaster recovery and a once in a lifetime sports tournament to get economic growth?

BILL    No, we’re not relying on them, and three months ago, no one was expecting the impact of the earthquake, which has been one of the reasons for much lower growth in the short term, and it will be rebuilt back in the long term. What we’re relying on is a longer-term plan which we’ve now been executing over three Budgets to shift the focus to exports and investment.

Meanwhile, on TV3's the Nation on Saturday, English outlined where jobs would come from:

Duncan         Just looking at this budget and a lot of it relies on the growth figures of the next two years.  Only 1.8% growth over the next 12 months.  Why is it so flat?

Bill                  Well that’s taking into account the fact that we had a negative quarter in the last quarter of last year, we still haven’t got the growth figures for the first three months of this year, but that’s when the Christchurch Earthquake happened, and 10% of our economy came to a stop in a matter of two minutes.  So that’s going to be pretty negative.  So that’s holding down the figures for this 12 months, but then they start rising off the back of the highest export prices in a generation, and the Canterbury rebuild.

Duncan         So where are those jobs?   I mean I've looked at Canterbury, I think there's about 12,000 new jobs expected to be created there.  You're contracting jobs in Wellington by the looks of things with your billion dollars of cuts to the Public Service.  So that leaves about 160,000 jobs.  I'm sorry but where are they?  I mean can you say where they are?

Bill                  Well they’ll be spread across the economy, but they’ll be driven primarily by the new shape of the condition which is that it's going to grow by earning in the next ten years, where in the last ten years it grew by borrowing.  So you're not going to see really strong growth in government, you're not going to see really strong growth in retail.  You’ve seen a lot of shrinkage in the construction sector which is job rich.  As we move through in the next two or three years it's going to pick up and replace the job that’s lost.

(Updates with Breakfast comments from PM Key.)