Slowdown will limit Wellbeing Budget
The Budget’s wellbeing emphasis means more focus on spending rather than revenue, says Deloitte chief executive Thomas Pippos. “All Budget initiatives have a wellbeing aspect to them,” he said. While “wellbeing” was the label this Budget had been given, it was likely to be more a case of “evolution not revolution”, Pippos said. On Thursday, Finance Minister Grant Robertson delivers what’s being billed as the first ever Wellbeing Budget. Based on the living standards framework developed by Treasury, it will include reporting on the Crown’s progress on environmental social and cultural
issues — as well as the fiscal picture.
But with economic growth slowing there will be limits to how much “wellbeing” the Finance Minister can afford.
“There’s no doubt that with it being called a ‘Wellbeing Budget’ the focus will be on the spending more than the actual revenue,” Pippos said.
“From a business point of view people are going be more interested in both sides of the ledger — where the money is coming from, where the money is going, and what the trajectory is in terms of the out years.”
But slowing economic growth will be weighing on Robertson’s conscience, Pippos said.
“You’ve got to be somewhat conservative, bearing in mind the global market and where it’s going.
“They can afford to be cautiously optimistic, as opposed to pessimistic.”
Most economists agree the Government is on track to meet its fiscal goals but may have to lower forecasts and keep spending
tight. Changes to debt limits in the Budget Responsibility rules, announced last week, won’t change the equations for this year’s accounts. “The total Crown OBEGAL [operating] surplus of $2.5 billion is running ahead of the Half Year Update forecast by $329 million,” writes Miles Workman, ANZ senior economist.
But as of March, tax revenues were running $542m below forecast.
“Softer GST revenues account for around two thirds of the forecast variance, but some of this appears timing related, so should reverse in coming months. Lower corporate tax accounts for the remainder.”
Meanwhile core Crown expenses of $63.5b show a $583m underspend, more than offsetting weaker tax revenues.
Around $200m of this is because of an underspend on the Fees Free programme with enrolments not meeting initial forecasts. Spending on social assistance benefits was also a little lower, reflecting ongoing tightness in the labour market.
“All up, there’s nothing in the starting position to suggest urgent and drastic change is required to steer the books towards where the Government wants them to be, “Workman said. “But a weaker economic and fiscal outlook could have made for a few tough choices.”
Westpac senior economist Anne Boniface said she would not be expecting much new spending on Thursday.
“The fiscal accounts are likely to show the Government is running out of wiggle room,” she wrote in her Budget preview. “We expect little additional spending although we could see some reprioritisation of spending. Despite this, the Government is still likely to need to borrow a bit more.”
ASB’s Nathan Penny said he expected to see fiscal targets hit but that could mean tightening in some other areas.
“We expect Budget 2019 to show small operating surpluses, a largely flat net debt profile, mixed in with modest spending and investment increases where fiscal headroom permits.”
He also expected to see Treasury revise down its economic growth forecasts over much of the forecast horizon.