The Treasury’s pre-election economic and fiscal update warns future governments will have to keep a tight lid on spending for more than a decade.
It said New Zealand’s fiscal position will improve across the next 15 years but only if all the budgets to come were smaller, in real terms, than Budget 2023.
The agency’s pre-election forecasts were not quite as bad as had been predicted by some economists, with government borrowing increasing by $9 billion across the next four years — rather than $10 billion to $15 billion forecast.
Finance Minister Grant Robertson’s recent cost saving initiative has helped keep the deficit under control and will usher the Crown accounts back into surplus in the 2026/27 fiscal year.
Part of these savings was cutting future operating allowances (planned new spending) from $4.5 billion in Budget 2023, down to $3.25 billion in 2024 and only $3 billion thereafter.
In the pre-election update, Treasury said these allowances were enough to deliver current government policy but not much more.
It said past analysis showed $3 billion should be “broadly sufficient” to meet unfunded critical cost pressure, although “significant trade-offs will be required”.
“There could also be additional demand (eg. population changes) that could add extra pressure to future Budget allowances,” Treasury said.
The fiscal outlook would be worse than forecast if future governments continued the recent trend of exceeding budget allowances without increasing revenue.
The forecasts—which show net debt falling to just 9.2% of GDP in 2037 and a surplus averaging 0.2% across the period—would be very different if operating allowances were increased by just $1 billion.
Deficits would then average 2.3% of GDP and net debt would rise to be just over 25% in 2037.
Treasury said this forecast was for flat-to-falling government consumption, with real consumption ending the forecast period similar to its current level.
“This represents a significant departure from recent upward trends. Over the next four years real government consumption is forecast to decline on average 0.2% per year, in contrast to the decade to June 2023 when growth averaged close to 4% per year,” it said.
“In an environment of relatively high population growth, the flat-to-falling government consumption implies declining consumption on a per-capita basis”.
No new recession
Despite the tight Crown accounts, Treasury’s economic forecasts were similar to the ones included in Budget 2023 but with a more moderate economic slowdown.
The New Zealand economy could avoid further recession and grow 1.3% in 2024, however economic growth per person will fall 0.7% and recover just 0.6% in 2025.
This was more positive thanks to an increase in net migration which has supported employment growth and boosted house prices.
Treasury said slow economic growth would continue over the next eighteen months as high inflation necessitates high interest rates.
Unemployment would rise from the current 3.6% rate to 5.4% in 2025, and then retreat to 4.6% by 2027. The Official Cash Rate was forecast to peak at roughly 5.7% and stay until 2025.
“In order to contain the additional non-tradable inflation, interest rates will stay elevated for a longer period than forecast at the Budget Update,” Treasury said.
122 Comments
Enables the banks to keep raking it in. Anyone else notice the spread between 6-month and 5-year looks weird?
If government keeps a rein on spending (as so many want) then inflation will fall quickly and rates will follow suit. And with it the spread between 6-month and 5-year returns to normal.
To be fair, Muldoon was probably the last real socialist, we had in charge of the country. High personal tax rates / more distributed income, closed economy, government knows best type of leader / government.
And then it was replaced by probably the most free market Government this country had seen. (And no Government has ever replaced the basic core policies that RogerNomics introduced.)
I look back and would say It was almost as if the two parties had swapped policies during that period.
And despite this the country didn't seem as divided as it does now..... We didn't use to divide people into their political groups (Or any other groups - sex, religion, etc).
Yep.
"Dr Cullen believes he has painted his rivals into a corner. "The cupboard is bare," he said,..."
Editorial: Cullen moves out of comfort zone | Stuff.co.nz
Why do Governments need to run surpluses? Imagine if from the early 2000's successive Governments ran continuous surpluses, and we had say private debt to income limits of 3? What would our economy look like?
"Stop spending our hard earned taxes" would turn into "give us back our hard earned taxes".
Why do Governments need to run surpluses?
I’d imagine this to link to the cyclical nature of economies based on human behaviour. Best to bank some cash when times are good to spend and soften the blow when the cycle is on the downswing, which makes the situation we find ourselves in precarious.
Bank account was full? Not so fast Dan. Firstly, NZ had $87bn in financial assets at December 2008. We had $101bn of liabilities at that time. Secondly, Cullen had baked in over $4bn of extra spending in his last budget in 2008 with no corresponding revenue increase. Thirdly he left the country with forecast deficits for the years 2008/09, 2009/10, 2010/11, 2011/12 and 2012/13 of $4.329 billion, $1.990 billion, $3.598 billion, $3.609 billion and $3.333 billion respectively. In short, the $87bn in the bank isn't worth a turd, as there is already a deficit in what it covers, with more deficits to come. The numbers come straight from Treasury. Anyone that was interested in making a comment about NZ's Financial Position and "perspective" should surely look the numbers up before making a statement that is at best disingenuous. And as a parting point, this from NBR at the time "Dr Cullen was gleeful in the hours after his final budget. He smirked and gloated that he had left no money for National. In fact he agreed in an interview with Gordon Campbell that his budget was a “booby trap” for National". Perhaps you should revisit your comment.
T-bone, we had liabilities of $101bn to pay. To pay with the $87bn. Plus, an extra $4bn of Government expenditure incurred by Cullen. Plus an annual deficit for the foreseeable future that was forecast. So the numbers don't add up. Cullen left us unable to pay our creditors unless we borrowed. Let me use an example. You have money in your bank account. You are about to lose your job, but are starting one that is on less pay, but your expenses are going to stay the same and you are going to have a decent money deficit until your pay goes up. So you use all your money in the bank to pay down the debt on your house. But don't leave yourself any money to pay off your credit card or feed your family. You are forced to borrow the money back. At a higher interest rate to tide you over. If anyone thinks that's stellar financial management, they have rocks in their head.
NZ Government debt to GDP was 23.9% when Clarke's Labour Government came into power in 1999 in and 5.4% when it left in 2008. Key's National Government took it back up to 25.5% before dropping back own to 21.6 % when Labour got back in in 2017.
https://tradingeconomics.com/new-zealand/government-debt-to-gdp
This was more positive thanks to an increase in net migration which has supported employment growth and boosted house prices.
Yeah. The cake has shrunk however we have invited more dinner guests. More dishes to wash mess to clean up, drinks to be poured and sleeping mats to be found. Less to eat and share of course...But wow...look at the extra work we created for ourselves! Aren't we sooooo clever.
Credit ratings are rather meaningless for governments such as ours which spend and tax and borrow in their own sovereign currencies.Where do bondholders obtain their NZ dollar currency from to buy the bonds except from our governments own spending. Taxpayers can never repay the governments debt as taxation only cancels the governments currency. Just as happened with QE the government simply returns the money back to the bondholders.
Absolutely ! For some reason people are lazy to read into the details.
RBNZ clearly says the so called 'borrowing' or 'bond game' happens in the RBNZ 'settlement' accounts (basemoney ) All the private bank money cannot be directly used for govt 'funding' - it has to go through settlement balances of banks .
And only government can increase the settlement balances through new spending.
In short , NZ has 2 types of money . Banks create sooo much money for housing gambling ; and government create money for spending
Credit ratings are rather meaningless for governments such as ours which spend and tax and borrow in their own sovereign currencies.
I get your point but the idea that all is dandy because we issue our own sovereign currency is something of a fantasy IMO. Can I prove that? No.
Do I refute MMT? Not at all. Do I believe that Nu Zillun can spend. tax, print like the U.S. and Japan? No I don't.
List of every government's Debt-to-GDP. Click on the column header "Last" to sort by size. NZ 35% Japan 260%.
https://tradingeconomics.com/country-list/government-debt-to-gdp
Previewing PREFU | croaking cassandra
Refer last chart "We have had 20 years in which New Zealand governments’ ran net debt as a share of GDP materially lower than the median OECD country. That gap is closing fast (this chart is using data well before the recent deterioration in New Zealand revenue flows). And it isn’t a Covid thing. The point made by the chart is that the median country saw a brief Covid blip, but now has net debt as a share of GDP a bit lower than in 2019. In New Zealand, by contrast, by the big Covid spending well behind us, both parties seem okay with debt still rising rapidly (they may say otherwise, but judge them not by the handwaving medium-term rhetoric but by their specific and immediate actions and commitments."
Given this record household debt (mortgages),where else does the money come from to pay it back , other than government spending ?
Government has to run deficits and spend (wisely) to increase productivity.
Here we have one party which runs government does misspending . And other future government party promise to cut-down spending but also promise to enhance housing ponzi.
"God Defend New Zealand..."
But it's not that simple. What about our current account deficit?
Would be like comparing someone who is unemployed with $5k of debt, saying that it's only 35% of their $14k p.a. benefit. But by the time they pay for food, rent, power etc they have nothing left over to service that debt and will often have to top up with loans.
Meanwhile Japan is a doctor earning $300k p.a. with a mortgage of $700k.
Neutral_Observer,
I was looking this up today and got very different figures from an OECD interactive chart. They have NZ's Gross debt/GDP at 56.60%. I am certain that Trading Economics figure for Australia is miles off at 22.30%. It is much higher than that, though falling while ours is rising.
Did Robertson still include the $65 Billion in the NZ Super fund as a credit without the associated liability for Super ?
Skycity had a nasty tumble, and Prefu could bring the same for NZ economy | Stuff.co.nz
Governments should not own commercial banks and Kiwibank should be first on the block. This was just a vainglorious prodigy of the consummate socialist Jim Anderton with the objective of competing with the Aussie big 4 banks. Its totally failed in its objective and should be sold asap.
I wonder if there are any calculations showing how much NZ would be making if we hadn't sold off big parts of the energy companies. That money could pay for health etc. Once you have sold off assets, future governments have nothing else lefty to sell as a safety net. So then they solely rely on tax to pay for things, and NZ tax[ayers end up paying more for services, much of that money then going offshore to investors, oversea retirement funds etc. Yet the National government wants to give tax cuts, with high income earns getting the most. You can't both cut tax without cutting services, and there is only so much fat to cut from government.
Fuel tax is a dollar amount per litre, not a percentage, so it needs to be increased with CPI to remain at the same real level. And even then that assumes road costs are only increasing at the rate of CPI which is probably never true.
Labour's fuel tax increase is way less than CPI, and I doubt National will increase it at all, so it could decrease in real terms by 30% or more in the period 2021 - 2026. Once the road is 100% pothole it is easier to drive on.
Well Govt set Tax. Labour and green can put another. 5 dollars P/L on fuel and force people to use EV. Govt can force petrol price to go as high as they want. If they want 100 dollars petrol , they can make it happen. Just put 100 dollars tax on it and then petrol price become 100 dollars P/L
Don’t know who the treasury is employing but I suspect they all need some time beyond their models and spreadsheets. Immigration isn’t going to save a country that isn’t actually producing any more unless they all come with hoards of cash, spend it all and then leave. There’s sweet F all chance of any government that wants to be re-elected making the kinds of cuts needed to decrease government spending in a highly inflationary environment - it works the other way around - new things we haven’t thought of pop up and demand extra spending- not less. Case in point will be all the new infrastructure we need to enable houses to be built to keep up with a renewed housing debacle based on rampant immigration and unresolved planning nightmares. Let’s not even talk about the presumably proposed costs of the ‘just transition’ - or is that not funded in these projections? Presumed drowned by an incoming tide from the right?
It worries me that such vital institutions don’t seem to grasp just how badly the increasing number of converging issues are likely to play out for us.
10-15 years of restraint they reckon? Too many young NZ‘ers will have left for overseas by then with nobody left to support the massive healthcare and super demand draining the budget. We need to focus on education which has dropped off, retaining young people and upskilling them in NZ as well as giving them a real hope of forming a life here by being able to afford a house and children. Many have said it, but there are a lot of us who would gladly get nothing from the election if it meant longer term hope and prosperity for our children or future children.
Oh, you don't get it yet. Society has been arranged to discourage people from having children. Obviously there will always be ferals popping them out, though they are more a public works scheme for the criminal-justice-system and charities that aren't really charities.
In order to keep house prices high and reduced the global population (stupid/demonic goals if you ask me), immigration is the order of the day.
Sounds unbelievable I know.
https://www.rnz.co.nz/news/political/496763/government-shaves-off-4b-wh…
"Here's where the nearly $4b in cuts, savings, delays and reprioritisations announced by the government have come from.
The government on Monday announced it was making changes to spending that would save nearly $4 billion over the next four years. That's $4b on top of the $4b saved in the 2023 Budget in May.
Robertson acknowledged some $236m was coming from the Climate Emergency Response Fund, which would normally be ringfenced for the climate spending but was instead being returned to the government's general coffers." (James Shaw won't be happy about that)
Not only did Labour pig out there is absolutely nothing to show for their gluttony.
No new infrastructure, no improved health services, no improved education.
Just a massive transfer of wealth to business, (most of who did not need it), overseas banks, and to those who have property (excluding the few who bought at the peak of the market and a few landlords out of there depth).
The worst Finance Minister ever, a populist Prime Minister who did not know what GDP was, and a RBNZ Governor who believed Tane Mahuta had a role to play in doing his job.
Wellness budget.
Shovel ready projects.
Implementation Unit.
https://www.stuff.co.nz/national/politics/300291501/deputy-pm-grant-rob…
Also the transfer of wealth to the lawyers running the cultural reports industry, the treaty industry, gangs, engineering consultants for the mysterious harbour crossing cycleway and the invisible light rail projects, consultants to the ministries for every conceivable interest group on earth, the "dairy defence smoke cannon and bollard" industry, the "speed restriction, road to zero and bilingual signage" industry, the rename everything and anything in Te Reo industry, the "I've got a great idea. Let's restructure and split the health system across racial lines in the middle of a pandemic" industry; The "merger of technical college" industry; the "rewrite the NZ education cirriculum" industry; Matariki public holiday costs; And lets not forget the "10 waters not 3+co-governance" industry.
Apart from these they've been quite frugal.
Also Prezzy cards Yayy! meanwhile - Defendants facing serious charges were among those given a $75 Prezzy Card for attending meetings in Hawke’s Bay courts to share their court experiences and ideas, and to “re-imagine the District and Family Court” in the region. How very inclusive
Reimagining working well...not
https://i.stuff.co.nz/national/crime/300968471/three-men-scale-2metre-h…
The MSM reporting has been very restrained on this outrage with no follow up. No mention either of gang affiliations. Perhaps they wouldn't want to give the impression crime is out of control at the moment.
Many new roads completed and others underway such as the Manawatu Gorge bypass. More new houses consented than since 1974. Kiwi Bank 100% government owned again and Air NZ kept afloat along with many other businesses through the covid emergency.
https://www.stats.govt.nz/news/record-number-of-new-homes-consented-in-…
https://www.hud.govt.nz/stats-and-insights/the-government-housing-dashb…
Whilst i agree with you, but remember this is in hindsight. This at the time was fully supported by all parlimentary parties, many of whom argued that even that was not enough. Lets not kid ourself to think that if English won the election he would not have done the same thing,
They were just following the agreed global orthodoxy as almost all western countries did the same.
The bigger issue here was the massive global central bankers groupthink that happened. They were all making decisions on a 2020 problem with 1980's thinking... which they still do today. No one has actually challenged the underlying orthodoxy to the decision making or looked to the establish a new rulebook for the 21st century.
Yep Takere, PREFU is a blood bath. IMF says that NZ is running the second largest deficit in developed countries. Core Government debt is now $160bn. The interest charges we are paying on our debt is more than we spend on law and order and is forecast to be more than we spend on education by 2027! This is what happens when University Student Politicians and Unionists get anywhere near running a country.
Government and RBNZ will just follow US FED narrative, central banks have no choice but to raise and keep rates higher for longer had to backbone back into currency or whole system was going to crash.after handing out the candy getting as many as possible hooked on cheap money and in debt, now many will be paying so much more for mortgage, loans and credit cards for years.Debt zombies just working to pay bills many on here can’t see it and think we will go back to low rates soon the facts are if they do the whole system will implode.
Immediately increase OCR to 20%, home loan rate to 30%. Keep it for 50 years +. And then to increase 30% OCR and 40% home loan rate for anther 40 years. Keep it forever. All borrowers will go through bankruptcy process but short term for long term get. Houses market will have huge correction in New Zealand history. Inflation problem solved .
Read:
15 more years of mass immigration, without investing in the infrastructure or services required to handle the growth it just to juice the stats,
The age old game that both National and Labour play. Do whatever they can to not deal with major issues and tinker around the edges.
Essentially this election between National and Labour is all about who is the better manager of the decline. Because that's all they offer these days. Tinkering.
If any one here thinks that National or Labour offer anything fundamentally different from each other, they have been drinking from their favourite parties cool-aid for too long.
I have always been an optimist, but sadly I have to concede that the economic forecasts are looking absolutely terrible for NZ.
This government is wasting its money paying interest on its borrowing, whilst it cannot afford to pay our teachers, nurses, police etc... adequate wages, and there is no money left to build infrastructure like roads, schools, hospitals, prisons etc...
What a terrible mess :-(
And who ultimately receives the interest that the government pays? We do as the deficits create our savings. https://theconversation.com/how-government-deficits-fund-private-saving…
One way of looking at it, or;
The people wasted their money on piles of unproductive debt investing in capital gains and avoiding paying tax. Over three decades they continued to be bribed by and vote for populist political narratives, misguided economics and divisive policies that never seemed to improve conditions. Eventually they realised that politics were mainly lies and propaganda, smoke and mirrors, deception and corruption. They were yet to see the truth of the predicament they were in... their social services were rundown and in disarray... the social contract was broken... their debt based pursuit of riches, economic model of society couldn't afford itself. The real horror was yet to hit them... they had no choice but to vote for more of the same.
While I understand much of this is driven by private spending, our current account status doesn't make for happy reading. https://thefacts.nz/economy/current-account/
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