English’s last fiscal update

Bill English
Finance Minister Bill English delivers his last set of Treasury forecasts.
Finance Minister Bill English yesterday released what will be his last set of the Treasury’s forecasts after securing enough support to become prime minister.

Economic Development Minister Steven Joyce  will almost certainly take over the role of finance in the new Bill English-led government.

Mr English leaves the role of finance minister with the Crown accounts looking in good shape. Average economic growth is set to rise to 3.6% next year, before falling slightly to 3.5% in 2018. The Treasury also forecasts economic growth of 2.9% in 2019, 2.4% in 2020 and 2.3% in 2021 but its forecasts are notoriously inaccurate, even in the short-term and are best used sparingly over the longer-term.

In a speech to Parliament, Mr English said the latest forecasts showed the Government’s programme of responsible economic and fiscal management was delivering benefits for all New Zealanders.

"Economic growth is expected to average around 3% over the next five years — considerably stronger than forecast in Budget 2016 — supporting more jobs, falling unemployment and higher incomes."

The more positive outlook for the economy was driven by high levels of construction activity, exports (particularly tourism), a growing population and low interest rates, he said.

The 2016 Half-Year Economic and Fiscal Update forecast unemployment to drop to 4.3% by 2020-21. In the same period, the Treasury expected another 150,000 jobs to be created and the average wage to increase by $7500 to $66,000.

While the recent Kaikoura earthquakes had a major impact on affected families and businesses, they were not expected to disrupt the overall momentum of the economy, Mr English said.

The earthquakes did highlight the importance of paying off debt in the good times so the Government could support New Zealand communities in the challenging times.

After accounting for the $1billion cost of the recent earthquakes, the Treasury forecast a $473 million operating balance before gains and losses (obegal) rising to $8.5 billion in 2020-21.

In dollar terms, net debt was still forecast to increase by a further $4.5 billion over the next two years owing to the Government’s capital investment programme, he said.

The forecasts showed net debt as a proportion of gross domestic product (GDP) had peaked and was forecast to fall to 18.8% of GDP in 2020-21. Crown net worth was forecast to continue to increase in line with the reduction of net debt.

The Government had allowed an operating allowance of $1.5billion for Budget 2017, slightly higher than those in Budgets 2009 to 2015.

Future operating allowances remained unchanged at $1.5billion per year in each Budget through to 2020.

ANZ senior rates economist David Croy said while the operating allowances remained unchanged at $1.5 billion over the next four years, there had been a significant increase in the capital allowance which had been increased from $900 million to $3billion in Budget 2017 and to $2billion in future budgets to provide for investment, mainly infrastructure.

For markets, the "surprise" would be in the detail of the bond programme, he said.

Although most assumed the hit from the Kaikoura quake would lead to an upgrade in current year issues, the surprise was the slack would be taken up by a planned syndication of a September 20, 2040 linker bond to be launched via syndication in the first half of next year. An index-linked bond was one in which payment of income on the principal is related to a specific price index — often the Consumer Price Index, the official measure of inflation in New Zealand.There was no change to the 2017-18 and 2018-19 bond programmes but a reduction of $1billion in 2019-20.

Labour finance spokesman Grant Robertson said the fiscal update provided further evidence  the economy,  the Government and Mr English were sitting on shifting sands and had left many people behind.

"It’s easy to glance at the headline figures and see a rosy picture of government surplus and economic growth, but look harder and there is plenty for New Zealanders to be concerned about.

"The country’s economic growth is a sand-castle  based on rampant house price inflation, high personal debt, and on population growth that is putting pressure on infrastructure and public services — pressure this Government is failing to address."

There were tens of thousands of people  left behind, homeless, out of work and losing hope under National’s watch, he said. 

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