Bernard Hickey 's Opinion

Bernard is an economics columnist for the NZ Herald

Bernard Hickey: Govt still dependent on 'normal' rebound

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The government is relying on growth from the Christchurch rebuild and continued strong growth in China and Australia to get the economy and the government's finances back on track.

There are no major moves to shift the economy or the budget onto a new track. There are tweaks around the edges of the tax system and the big spending departments, but nothing major that would change New Zealand's direction.

The government is essentially holding the line back to surplus by 2014/15, relying on some rosy Treasury forecasts to get it there.

It's a tried and true technique for the government. It also relied last year on Treasury's forecasts that the economy would bounce back to 'normal' growth rates of around 3-4 per cent to bring the budget back to surplus.

That didn't happen thanks to delays in the Christchurch rebuild and slower than expected economic growth.

So the government again rolled the Treasury's forecast dice and added a few tweaks on the revenue and spending side. Its decision not to bring in auto-enrollment for KiwiSaver and nudge up the repayment rates for Student Loans saved a bit here. Little tax tweaks on boats, houses, maids and livestock added a bit there.

But it remains dependent on economic growth rebounding to 'normal'.

What's more likely is the Treasury's downside scenario, given the slowdown evident in China and Europe in recent weeks.

That means the government would have to keep borrowing for longer.

If interest rates stay as low as they are now that presents few problems for the government.

But it doesn't shift the economy to a new track.


Bernard Hickey

Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for Interest.co.nz and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

Read more by Bernard Hickey

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