Finance Minister Nicola Willis appears to pave way for fiscal miss next month

Friday, 15 November 2024

Nicola Willis notes in Parliament that misses have become the norm.

Finance Minister Nicola Willis appears to be further softening-up MPs to expect an unwelcome drop in the Treasury’s growth forecasts and perhaps another delay getting the Government’s books back into balance.

Speculation has been growing the Treasury will scrap forecasts of the Government achieving an operating (Obegal) surplus in the year to June 2028, when it releases its half-year (Hyefu) forecasts on December 17.

Answering questions from fellow National MP Nancy Lu in Parliament, Willis said economic forecasts had “generally changed for the worse over successive updates” and reminded MPs that since the Hyefu in 2021, every forecast for the return to Obegal surplus had been pushed out.

BNZ research head Stephen Toplis was unsure whether the observation was intended to excuse this year becoming no exception.

But it was almost certain the Hyefu would show the Government’s short-term fiscal position would be worse than expected, and it would not take much to wipe out the projected small surplus for June 2028, he said.

Willis said it had become clear the “current recession” started earlier, was deeper, and persisted for longer than was earlier understood.

She also pointed out the damage that low productivity growth could do to the Government’s accounts.

“Earlier forecasts attributed too much weight to an apparent pick-up in productivity over the Covid period. This pick-up proved to be illusory,” she said.

“So, incrementally, Treasury has been lowering its assumptions around labour productivity.”

Finance Minister Nicola Willis speaks at the Treasury’s Hyefu in December last year; its forecasts then now appear optimistic.

That could be expected to have a knock-on effect on the Government’s accounts, she warned.

“Economic forecasts flow through to the fiscal forecasts in several ways – especially through the impact of nominal GDP on tax revenue, which subsequently impacts on debt and the operating balance.”

Speaking to The Post, Willis was upbeat about the country’s broader economic prospects, however, contrasting those with “a world of extraordinary challenge” where countries worried about insecurity on their borders, access to natural resources, and their institutions.

“We in New Zealand have a safe border, abundant natural resources, lots of land, smart people and institutions.

“There's every reason to believe that in a world of challenge, New Zealand can be a place of growth,” she said.