Robertson defends forecasts, as economists warn of a return to deficit

Friday, 31 May 2019

Finance Minister Grant Robertson defends 'optimistic' Treasury forecasts.

Finance Minister Grant Robertson is defending Treasury's forecasts, saying the impact of a slowing economy has been accounted for.

Thursday's Budget say Treasury release figures which both acknowledged that the economy had slowed, pointed to the risk of a further hit from weak business confidence, but still predicted growth would pick up to 3 per cent in 2020.

For all the pre-Budget talk of the Budget being about more than a focus on gross domestic product (GDP), Robertson needs growth to pick up as Treasury expects.

The Budget saw the Government reveal a plan to spend around $11 billion more over the next four years than was expected six months ago.

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Finance Minister Grant Robertson told a post-Budget breakfast that while economists may believe Treasury is being too optimistic about future economic growth, he had confidence in the figures.

If tax revenue comes in even marginally below where Treasury expects, Robertson's target of reducing net debt to 20 per cent of GDP will be missed.

Even on the existing forecasts, Robertson will only barely hit the target.

Economists are doubtful that the economy will expand as quickly as officials predict.

'The Treasury's revenue forecasts look a little too generous, meaning that future surpluses may not be as high as forecast,' Westpac said.

ANZ chief economist Sharon Zollner said the Government's low debt gave it scope to increase spending if the economy slowed.

'We are a touch less optimistic than the Treasury on the growth and tax revenue outlook,' ASB warned, adding'we suspect that there may be a small risk that the Government misses its net debt target'.

BNZ head of research Stephen Toplis said that rising pressure on spending and downside risks to growth created 'the very real possibility that the Government will soon return to deficits'.

Toplis speculated that New Zealand could return to deficit as soon as 2020; Treasury's forecast surplus is just 0.4 per cent of GDP, meaning even a slight deterioration could cause a return to the red.

Robertson, speaking at an annual post-Budget breakfast hosted by ANZ (which also said Treasury's figures may be too rosy), backed the Treasury analysis.

'It's been a comment that's been made both in this room and outside in the last 12 or 15 hours or so, is whether or not the forecasts hold up and whether or not they're too optimistic,' Robertson said.

There was a saying that 'if you've got 12 economists in a room, you'll get 13 opinions and so I think the reality is Treasury's forecasting, actually by and large, over the years, holds up pretty well in comparison to others,' Robertson said.

'But the main point is, we've already factored in the idea that there is a global slowdown and it is impacting on New Zealand.

'That is part of these calculations, so we've got confidence that they will hold up.'

The Government would keep an eye on the global headwinds, which he said were not fading.

'The US-China trade war is showing no sign of actually stopping at this point,' Robertson said.

During his trip to Washington DC in April for IMF and World Bank meetings 'there was genuine concern in the room about where this was going to end up'.

ANZ chief economist Sharon Zollner told the audience that the Government's relatively low debt levels meant that there was 'plenty of fiscal headroom' to help stimulate the economy if a slowdown deepened.

This was welcome because unlike the last time the New Zealand economy entered a recession, there was very little scope to respond through lower interest rate.

'With the official cash rate at 1.5 per cent and expectations that it is going lower well before anyone suggests we might be heading into a recession, odds are, you might just need it.'

National's finance spokeswoman Amy Adams said in recent years Treasury had tended to over forecast growth.

'I think that is biting a little bit because when the revenue's not there, the numbers quickly get out of whack'.

The Government was operating with a narrow margin of error, which would quickly lead to New Zealand's fiscal position deteriorating.

'When the economic growth machine slows down, you get that double-whammy of not only lower revenue, but higher fiscal stabilisers and spending increase when people go in to state assistance,' Adams said.

'It doesn't take much in the way of a slowdown in economic growth to feed through to a pretty sizeable impact on Government surplus.'