Budget 2020: Robertson quotes two unemployment forecasts but economist fears Treasury is optimistic

Thursday, 14 May 2020

Finance Minister Grant Robertson in The House delivering Budget 2020.

The fear of unemployment may have replaced actually catching Covid-19 as the biggest worry for many Kiwis, thanks to New Zealand's success so far in containing and hopefully eliminating the virus.

But figuring out just how concerned New Zealanders should be about ending up on the dole appeared to get a little harder on Budget Day, when Finance Minister Grant Robertson quoted two different forecasts of when, and at what rate, unemployment might peak.

In his Budget speech, Robertson said unemployment was forecast to peak at 9.8 per cent in September, before 'recovering thereafter'.

But in another Budget document, Robertson reported that new Treasury forecasts showed unemployment could peak sooner than that, in June, at the lower rate of 9.6 per cent and could drop back to the March rate of 4.2 per cent with just two years.

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A spokesman for Robertson explained that the 9.8 per cent figure was Treasury's 'central' forecast, but that had been based on assumptions in April, when it was assumed the Government would spend $35 billion on its fiscal stimulus to mitigate the impacts of the virus.

Treasury had since produced another forecast, based on the Government spending the full $50b it announced on Budget day, that resulted in the lower and earlier predicted peak, he said.

'The Budget shows how unemployment could peak at 9.6 per cent.'

Robertson had quoted the 9.8 per cent figure in his 'official' speech because it was the central forecast 'but for the Government we are planning on the full $50b being invested in the forecast period', he said.

Not everyone is buying the Treasury's forecast, though.

Infometrics economist Brad Olsen said it remained sceptical about what it sees as an 'overly optimistic view from Treasury' that the economy can return to normal levels within two years.

'We prefer the 'slower recovery' forecast track, which we expect better reflects the structural economic changes that the economy will be forced to undergo.,' he said.