Economists doubt fiscal outlook

Treasury’s outlook for the economy has been dubbed ‘‘optimistic’’, with economists warning debt levels are likely to end up higher than forecast.

Yesterday’s half-year economic and fiscal update (HYEFU) forecast that economic growth would average close to 3 per cent over the next five years, peaking at 3.6 per cent in 2019.

Unemployment is also forecast to fall to 4 per cent, despite hikes in the minimum wage pushing wage growth significantly higher.

The forecast envisions revenue growth rising sufficiently to see net debt fall to below 20 per cent of gross domestic product by 2022, a core promise of Finance Minister Grant Robertson.

But bank economists questioned whether growth would hit targets, which would ultimately lead to lower tax revenue.

‘‘Treasury’s being far too optimistic here,’’ Westpac chief economist Dominick Stephens said.

Westpac is forecasting that economic growth in 2019 would be almost a full percentage point below Treasury’s estimate in 2019.

Since the election, business confidence has plunged to levels last seen in the global financial crisis. ANZ has said this poses a material threat to the economy.

Treasury secretary Gabriel Makhlouf said the forecasts assumed the drop in confidence was assumed to be temporary.

The forecasts assumed employment growth of 3 per cent in 2018.

Stephens said pessimism in the business sector would affect investment decisions.

‘‘They’ve made no allowance for the plunge in business confidence that we’ve seen. I think that that’s going to impact business investment early next year.’’

ASB said it expected growth to be lower than Treasury was forecasting, while inflation was likely to be weaker.

‘‘[We have] a view that the nominal [economic growth] outlook is too strong,’’ ASB chief economist Nick Tuffley said.

‘‘We just see the risk of the revenue growth not being as strong as what’s being banked on.’’

ANZ senior economist Phil Borkin said Treasury’s outlook should allay fears in some circles that the new Labour-led Government would oversee a deterioration in the fiscal position.

‘‘Nevertheless, we are left with the impression that the numbers represent something of a best-case scenario,’’ Borkin said.

‘‘Given our less optimistic views on the growth – and hence revenue – outlook, together with what we see as likely pressures on costs and spending demands, we ultimately see the risks skewed only one way.’’

Robertson outlined his debt target in Labour’s fiscal plan before the election. He has called it an ‘‘anchor’’ that prepares New Zealand for future shocks and imposes discipline on the Government.

National finance spokesman Steven Joyce said the forecasts left Labour with little room to move within its plan.

‘‘The coalition has set up very tight operating allowances for their future spending and have left very little room for dealing with the ongoing spending pressures that any Government faces.’’

The target sees debt grow in nominal terms, peaking at close to $70 billion in 2020, but remaining stable as a share of the economy.

Rocket delay

Rocket Lab will attempt to launch its second Electron rocket from the Ma¯hia Peninsula at 2.30pm today, after rising winds at altitude prevented liftoff yesterday. The company’s 10-day launch window closes on Sunday. Spokeswoman Morgan Bailey said jet stream wind speeds yesterday would have violated the ‘‘conservative criteria’’ the company had set for its second test flight – which will also mark its first attempt to put satellites into orbit. The test flights are aimed at collecting data, which was most meaningful if the launches occurred in ideal conditions.

Debt offer

Struggling debtors now have a new way to rebuild their creditworthiness. Credit Simple, a business owned by credit bureau Illion, has launched a service called Clear Name, which will let defaulters pay debts off at a discount. But only those who owe money to lenders and other businesses that sign up to the service will get the chance. Illion, formerly called Dun & Bradstreet, compiles credit files using information from the likes of banks, power providers, and finance companies. But it also has a debt collection arm, which chases up unpaid debts for paying clients.

"We just see the risk of the revenue growth not being as strong as what's being banked on [by Treasury]." ASB chief economist Nick Tuffley