Mr Robertson has resisted the temptation to grab more revenue by higher taxes, although he has reversed National’s tax cuts, something well signalled in the election campaign.
The general consensus from economists and business leaders was financial restraint would remain top of mind for Mr Robertson and the Government.
The Treasury yesterday released its half-year economic and fiscal update and Mr Robertson released his budget policy statement (BPS).
In terms of Government policies that had been fully costed, the update included an additional $8.4billion of operating spending over the next five years. The greatest part of the additional spending was the Families Package, which included an increase in family tax credits, a Best Start payment for newborns, a winter energy payment, and an extension of paid parental leave. The other major spending commitment is in tertiary education, with fee-free study being phased in from next year and an increase in student allowances.
Westpac chief economist Dominick Stephens said the extra spending was expected to be matched by extra tax revenue stemming from the cancellation of adjustments to personal income tax thresholds which the previous government had scheduled for next year.
The operating balance forecasts were slightly lower for the next few years compared with the pre-election fiscal and economic update in August. However, by the June 2021 year they were expected to exceed the previous forecasts.
GDP growth was forecast to be a little slower in the near-term, but still accelerating to a peak of 3.6% growth by June 2019. The growth forecasts for later years had been revised higher.
The half-year update also included a substantial increase in planned capital spending, totalling $41.7billion over the next five years, Mr Stephens said. Some of it includes the restart of contributions to the New Zealand Super Fund, as previously announced. Contributions started today.
The KiwiBuild programme had been allocated $2billion initially, as already announced, but also a further $3.4billion in later years.
Despite the large increase in capital spending in particular, expected bond issuance has been increased by only $1billion compared with the pre-election update.
"This implies that the Government will pay for much of this additional spending by running down other financial assets."
ASB chief economist Nick Tuffley said his main quibble was the risks to the Treasury’s economic forecasts.
As a result, the ASB anticipated smaller operating balances and higher debt levels than shown in the half-year update.
The operating balance estimates under the new Government made for healthy reading, he said.The operating balance excluding gains and losses (obegal) increased steadily from 0.9% of GDP in 2017-18 and 2018-19 to 2.5% of GDP in 2021-22.
"Generally, we are less bullish than the Treasury in this regard. We expect smaller operating surpluses, particularly in the latter half of the forecast period."
The Government had committed to reduce net core Crown debt to 20% of GDP within five years. The half-year projections matched that commitment: net debt initially rose to 22.2% of GDP by June 2019, then fell to 19.3% of GDP by June 2022. The projection assumed a sharp lift in the operating surplus to $8.8billion in the final year. The pre-election update projections did not go out as far as 2022, but Labour’s pre-election fiscal plan assumed a surplus of $6.6billion in that year. Mr Stephens said the change to the forecast appeared to be due to an assumed slow-down in spending growth in 2022, although it was difficult to tell where the slow-down occurred.
ANZ senior economist Phil Borkin said yesterday’s figures would help allay fears in some circles about the Government potentially allowing a significant deterioration in the fiscal accounts.
"However, we are left with the impression the numbers represent something of a best-case scenario.
"Given our less optimistic view on the growth and revenue outlook, together with what we see as likely pressures on costs and spending demands, we ultimately see the risks skewed only one way."
