Govt to release economic, fiscal update

The new Labour-led Government will this week release its first take on the country’s financial accounts.

The Government has received plenty of criticism since it was elected for delaying the release of information about its coalition deal.

On Thursday, the half-year economic and fiscal update is expected to include the costs of the 100-day plan.

The Budget policy statement,  which is being released at the same time, will outline the Government’s priorities for Budget 2018 and show the level of operating and capital allowances.

Finance Minister Grant Robertson promised in an earlier speech he would provide some guidance on the Government’s plans in an address today. Whether that happens is a moot point given the emphasis market and political observers have placed on Thursday’s 1pm release.

Economists are forecasting some positive figures in the fiscal update, although there will be little "wiggle room" if things do not go exactly to plan.

ANZ senior economist Phil Borkin said the fiscal update would continue to portray a "reasonably positive" outlook for the financial accounts.

The starting point for the accounts was strong.

In the year to June, an operating budget surplus, excluding gains and losses (obegal),  of $4.1billion was reported, marking the third consecutive year the accounts had been in black, he said.

Additionally, both in absolute terms and as a share of GDP, net debt had fallen and was sitting at 22% of GDP. Monthly data received since then had not altered that solid picture.

"On top of that, we suspect the Treasury will continue to project a reasonably solid economic outlook."

Within the pre-election fiscal update, the Treasury had forecast strong real GDP growth of 3.2% and 3.7% in the years to June 2018 and 2019 respectively.

Nominal GDP growth was forecast to average close to 5% per year over the next five years, Mr Borkin said.

While it was possible near-term growth forecasts would be downgraded modestly, it was likely the Treasury would maintain an upbeat medium-term prognosis, setting the scene for a still-decent profile for revenue growth.

The strong backdrop gave the new Government options, and it was clear it  intended to exercise some of them, he said.

The new Government had been transparent in its spending plans, campaigning ahead of the election that operating spending would increase and be largely funded by the cancellation of the previous government’s personal tax cuts.

By its own numbers, spending commitments were an additional $6billion higher by 2020-21 as health and education grabbed the lion’s share.

Capital expenditure was also higher, including the restart of contributions to the New Zealand Superannuation Fund, Mr Borkin said.

"The key message, though, is there will be room to accommodate all these plans, as things currently stand."

In terms of the numbers themselves, the Labour Party’s own projections served as a useful starting point. But they should be treated as indicative only, he said.

Labour’s figures did not include the cost of policies conceded as part of the coalition negotiation process.

Operating surpluses were expected to be smaller and debt levels were likely to be modestly higher than previous forecasts, although within the Government’s fiscal targets.

ASB chief economist Nick Tuffley agreed there would be smaller operating surpluses and he estimated they would average 1% of GDP over the five-year forecast period.

The Government was likely to sail closer to the "fiscal wind". He expected the operating surplus as a percentage of GDP to be flat for the five-year period. In contrast, the pre-election fiscal update showed the operating surplus increasing from 1% of GDP in 2017-18 to 2.4% by 2021-22.

Higher debt levels translated into higher a larger bond tender programme, anticipated to be about $12billion higher than forecast  in the pre-election update, he said.

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