Government’s half-year economic update expected to show worsening outlook

Tuesday, 17 December 2024

Treasury will release its Half Year Economic and Fiscal Update (HYEFU) on Tuesday and economists expect to see a deterioration in forecasts.

Treasury will release its Half Year Economic and Fiscal Update on Tuesday.

Economists expect the update to show a deterioration in financial and economic forecasts, including larger deficits that take longer to clear.

ASB senior economist Mark Smith says operating deficits over the next three years could be up to $1.5 billion larger than assumed in the May Budget.

The Government’s operating deficits could be $1.5 billion higher than expected over the next three years, delaying a return to surplus until 2028/29, economists say.

Treasury will release its Half Year Economic and Fiscal Update (HYEFU) on Tuesday and economists expect to see a deterioration in financial and economic forecasts.

Stuff senior journalist Aaron Dahmen breaks down Budget 2024 - the first for Finance Minister Nicola Willis.

Westpac senior economist Michael Gordon said the operating deficit had been tracking worse than forecast at the May Budget, mostly due to higher than expected spending.

“On top of this, the Treasury is likely to downgrade its near-term GDP forecasts, and perhaps even its longer term assumptions about the economy’s growth potential.”

Gordon expected the Government’s longer-term fiscal objectives to remain unchanged, but said it was likely the projected return to a budget surplus would be pushed out by another year.

“The Treasury have indicated that it is likely to revise down its estimates of near-term growth prospects and its medium-term productivity assumption, which would lower tax revenue over the forecast period.

“As a result, we expect the Treasury to forecast that the operating balance will remain in deficit until 2028/29.”

Finance Minister Nicola Willis delivered her first Budget in May. (File photo)

ASB senior economist Mark Smith said operating deficits over the next three years were expected to be $1 billion to $1.5 billion larger than assumed in the May Budget.

“We expect the HYEFU to toe a tight fiscal line. Little change, if any, is expected to Budget operational allowances of $3.2 billion in Budget 2024, and then $2.4b for subsequent budgets.”

Smith said there had been a sharp jump in government debt since the beginning of the Covid-19 pandemic.

Demographic changes, New Zealand’s acute infrastructure needs and climate change put huge demand on public sector resources, and the Government’s balance sheet could be further tested if another adverse event arose.

Multi-year capital allowances would be maintained, but there was likely to be a shift in focus, he said.

“Recall that the Budget forecasts have allocated $57.3b until 2028 for net capital spending, with infrastructure a key focus.

“However, we expect there to be considerably more focus on getting more value for money for the tens of billions of dollars that will be devoted to capital spending over the next few decades.”