Treasury puts lid on election lollies jar

Treasury has delivered its updated outlook for the Budget, and there is less money to spend in future years than economists expected – and politicians had hoped.

That is likely to curb extra spending or tax cut promises on the hustings as the parties gear up for the final month of the campaign before the September 23 election.

Finance Minister Steven Joyce immediately said a second tax cut and family income package, beyond the one due in April, would have to wait until 2020 unless economic conditions were considerably better than forecast.

‘‘Firstly we have to complete the first one.’’

If you were expecting a lolly scramble, forget it.

National was not interested in borrowing additional money to pay for a future incomes package.

There was very little room for additional expenditure after the end of this financial year; ‘‘potentially a few hundred million a year ... if that’’, Joyce said, adding it could be about $300m to $400m.

A future package would be ‘‘similar’’ to the one just announced.

The pre-election fiscal and economic update (Prefu) shows a big jump in the surplus for the year just ended, up by $2.1 billion from the $1.6b forecast in May to $3.7b in the latest set of figures. But the better news ends. A slightly lower overall growth outlook trims the 2019 surplus forecast from $4b down to $3.5b. For the next election year, in 2020, the forecast surplus has also been pared back from $6b to $5.7b.

Treasury secretary Gabriel Makhlouf said average growth over the next four years had eased slightly from 3.1 per cent on Budget night to 3 per cent now. Growth would peak at 3.7 per cent in 2018/19 before declining to 2.3 per cent in 2021.

Treasury’s forecasts were based on an assumed $1.7b a year for new spending initiatives and a $2b capital spending allowance growing to $2.5b. The improvement in the 2016/17 year was driven largely by stronger tax flows but this was not expected to continue because of the downgraded macro-economic growth outlook.

The starting point for Crown debt was better by $2b than in the Budget, and net debt was expected to fall below 20 per cent as a proportion of GDP by 2021 and to less than 15 per cent by 2025.

On the housing market, Makhlouf said strong population growth and low interest rates suggest residential investment would pick up. But tighter financial conditions and higher construction costs pointed to slower growth than previously forecast.

Unemployment is expected to fall from 4.9 per cent now to 4.3 per cent by 2020, which should see a faster rise in wages and prices.

There was little change to the international outlook from the Budget update, China was slightly stronger and Australia a little weaker.

Contributions to the ‘‘Cullen’’ New Zealand Superannuation Fund are forecast to resume in 2020/21, and Treasury’s next update will be in November – after the new government is in place.

Joyce pointed to an increase in jobs of 216,000 over the next 41⁄ years. The tighter labour market meant, ‘‘in a practical sense’’, the country was moving towards full employment.

Wages would lift 2.8 per cent in the first year and a bit less after that. But the terms of trade were better and the balance of payments deficit would improve to less than 3 per cent.