$11b lolly scramble in election year

Analysis: Better economic data means the Government could have its cake and eat it, writes Tom Pullar-Strecker.

The economic stars appear to be falling into alignment for the Government which can look forward to dribbling out details of $11 billion of new spending during election year.

There now also seems a good chance that one blot on its record, a forecast $900 million deficit in the year to June next year, may not actually eventuate.

The forecast deficit is relatively small and, as there always would be, there are some mitigating circumstances.

About $700m of the figure is due to ACC posting a record $8.7 billion deficit on paper for the year to the end of June, after lower interest rates forced it to recalculate the cost of funding its current injury claims.

The forecast deficit is ‘‘not a result of any direct action the Government has taken’’, Finance Minister Grant Robertson says.

‘‘It’s a result of changes to the forward liabilities of ACC, as well as the impact of lower global growth on tax and growth forecasts.’’

He also notes Treasury’s forecasts show growing surpluses over the following four years.

But any deficit would not sit well with the ‘‘expectation’’ Labour set out in its budget responsibility rules that the Government would be in surplus every year unless there was ‘‘a significant natural event or a major economic shock or crisis’’.

With Statistics NZ now reporting the economy grew 2.7 per cent in the year to September – and a much higher-thanexpected 0.7 per cent in the September quarter itself – it would be hard to claim there was any such crisis.

Robertson has himself stated that the GDP figures show the economy is ‘‘in good shape’’.

But now there seems every chance the Government can expect a surplus anyway.

‘‘It’s important to remember these are just forecasts, and we will see where we get to in the 2019/20 year,’’ Robertson observes of Treasury’s financial forecasts.

‘‘For example, growth numbers out for September indicate the economy could be stronger than previously thought.’’

In addition to the higher-thanexpected growth in the first quarter of the Government’s new financial year, other economic indicators have almost all been positive since Treasury did its sums.

After a deep autumn funk, business confidence as measured by ANZ – while still negative and fragile – has risen back to levels last seen in 2017.

Consumer confidence has bounced back to average levels, according to a Westpac survey.

Expectations of interest rate cuts early in 2020 have largely evaporated.

And all that bodes well for the tax take.

Overseas developments have also been positive.

Britain appears on better course for an orderly Brexit that could increase both trade and immigration should New Zealand want it.

Sharemarkets were near record highs in the wake of a long-awaited China-US trade deal.

Treasury had already upgraded its forecast for economic growth in the year starting in July to a solid 2.8 per cent, from the previous prediction of 2.5 per cent.

Adjust for population growth and that is nothing to shout about, perhaps, but it will be correspondingly harder to stick the economic mismanagement label on the Government.

National Party finance spokesman Paul Goldsmith says time will tell if this year’s deficit arrives, but the Government