The PREFU yesterday showed a bigger surplus and slightly softer growth than expected.
A slightly softer growth forecast is the main feature of largely unchanged Pre-election Fiscal Update compared to the Budget forecasts three months ago, Finance Minister Steven Joyce says.
“The softer growth New Zealand has experienced in the six months to March flows through to a lower starting point in the 2017/2018 year,” Mr Joyce says.
“The net effect is that growth is slightly lower through the forecast period – averaging 3.0 per cent over the next four years rather than the 3.1 per cent predicted in the Budget.
“The other notable change is that Treasury expects the labour market to be tighter over the next four years, with lower unemployment and stronger nominal and real wage growth.
“Treasury forecasts unemployment to drop to 4.3 per cent by June 2020 and for the average annual wage to increase from $58,900 at March 2017 to $65,700 by 2021, a $1300 per annum improvement on the Budget forecast.”
This is getting down to where only the unemployable – those who can’t or won’t work – aren’t in work. If we don’t have enough locals willing and able to work we will need more migrants.
Other changes to the forecasts include:
A smaller balance of payments deficit across the forecast horizon
Lower CPI inflation, especially in the 2017/18 year
Net government debt falling below 20 per cent of GDP in the 2020/21 year. New Zealand Superannuation Fund contributions remain scheduled to resume in that year.
Most other elements of the forecast remain very similar to budget predictions, with nominal GDP, migration levels and budget surpluses largely unchanged, although the timing of budget surpluses has changed.
“The Budget surplus is expected to be $2.1 billion higher in the year just finished,” Mr Joyce says. “However Treasury expects the lower growth forecast to result in surpluses that are $1.8 billion lower over the next four years. The net effect is about even.
“The Government’s strong fiscal management means that New Zealand is one of the few OECD countries to be posting fiscal surpluses. This hard-won position is underpinning the Government’s strong economic plan which is delivering jobs and steady real wage growth for New Zealanders.”
Continuing surpluses mean there is no need for new or higher taxes.
The large infrastructure spend committed to in Budget 2017 means that residual cash remains broadly in balance until the 2019/20 financial year.
“ There is limited room for any additional expenditure beyond what is already proposed in these forecasts until the 2020 financial year when there is expected to be a $1.7 billion cash surplus. Anything significant in the meantime would involve more borrowing or raising additional tax revenues,” Mr Joyce says.
More borrowing would be irresponsible.
Natural and financial disasters in the last few years show the necessity for reducing debt when possible to provide headroom for more borrowing when it’s needed.
More or higher taxes would also be irresponsible, showing politicians have a higher regard for their own spending then the right or people to keep more of what they earn.
The PREFU forecasts include the following budget spending commitments:
• $7 billion in additional operating expenditure over four years in Budget 2017 which commenced on 1 July 2017.
• $1.7 billion per annum ($6.8 billion over four years) operating allowance to be allocated for Budget 2018, increasing by 2 per cent each subsequent budget.
• $32.5 billion in total capital infrastructure investment between 1 July 2018 and 30 June 2021.
• $6.5 billion over four years ($2 billion per annum in out years) for the Government’s Family Incomes package commencing on 1 April 2018.
“Government annual operating expenditure in these forecasts increases from $77 billion to $90 billion over the next four years, which is sufficient for significant ongoing improvement in the provision of public services,” Mr Joyce says.
Careful management and a focus on the quality of spending rather than the quantity has given National the ability to pay for improved services while offering modest tax cuts.
Labour has been forced to say it won’t increase income tax but it wouldn’t deliver the tax cuts. That ignores the needs of middle income people who have moved into the 30% tax rate by bracket creep, effectively facing a tax increase when they earn a pay rise.
Labour and the other opposition parties are also considering new taxes with no plans to compensate with a decrease in existing taxes.
For three terms National has demonstrated that more spending isn’t the same as better spending, that better results can be achieved by more careful spending and that they understand every dollar a government spends is a dollar someone else has earned.
Everything Labour and other opposition parties say shows they would turn their back on that responsible approach and take New Zealand back to the bad old ways of tax and spend, tax and spend.