The National government heads into the election with its Budget surplus target broadly intact, delivering a set of economic and fiscal forecasts marginally revised from May to reflect weaker commodity prices and a lower tax take.
The Treasury now forecasts a surplus this year of $300 million, down from the $375 million it projected in the May Budget but still allowing Finance Minister Bill English to deliver on a promise to balance the books that he first made in the 2010 Half year Economic and Fiscal Update.
The Treasury has shaved 20 basis points off its forecast for gross domestic product in the year ending March 31, 2015, to 3.8 percent, from the 4 percent Budget forecast to reflect a faster decline in the terms of trade from the highest levels in 40 years and a slower pace of domestic inflation.
The Pre-election Economic and Fiscal Update (Prefu) allows National to tout its credentials for economic stewardship to an electorate captivated by Nicky Hager's Dirty Politics book, which risks tarnishing Prime Minister John Key's popularity by exposing his party's muck-rakers and their links to his office.
National's support fell 2 points to 47.5 percent in a 3 News Reid Research poll taken before Hager's book was released, while Labour rose 2 points to 29 percent and the Greens polled at 13 percent. A One News poll had National down 2 points to 50 percent and Labour down 2 points to 26 percent, with the Greens at 11 percent.
"New Zealanders have the opportunity to build on their hard-won gains of recent years - providing we stick with the government's successful programme," English said in his statement with the Prefu. This year's forecast Budget surplus "is still modest...and yet we already have political parties making expensive promises and commitments."
Asked if the Dirty Politics saga had overshadowed the government's economic record, he said: "The economy matters a lot more to people than some argument in the blogosphere." New Zealanders were more interested in jobs security and wage increases, he said.
He dangled little in the way of election bribes, telling a media briefing in Wellington that any tax cuts would be modest if at all, while Budget allowances are set at $1.5 billion a year. There was some scope for a reduction in ACC levies, which are projected to fall to $2.97 billion in 2018 from $3.4 billion in 2013.
The Treasury's assessment of the economy is broadly in line with the Reserve Bank's, including a continued decline in the trade-weighted index of the New Zealand dollar, a CPI rate that peaks within the bank's 1 percent to 3 percent target band. Impetus comes from construction activity, household income growth and in the short-term, strong net migration inflows.
Prices of dairy products slumped to their lowest levels since October 2012 in the latest GlobalDairyTrade auction, and combined with a drop in prices of logs is likely to cause a sharper decline in the terms of trade than the Treasury had been expecting. But the government department still expects dairy prices to stabilise this year.
Treasury secretary Gabriel Makhlouf told a media briefing in Wellington that the drop in dairy prices probably reflected of short-term demand, including the winding down of inventory levels in China, rather than any greater than forecast structural weakness.
The track for the current account deficit has been revised up, at 4.8 percent of GDP in the March 2015 year, up from the earlier forecast of 4.4 percent, and up to 6.2 percent in 2016 and 6.4 percent in 2017.
Risks to the Treasury's forecasts included geopolitical risks offshore, how households respond to rising interest rates, the pace of the Canterbury rebuild and the possible weaker performance of emerging economies, Makhlouf said.
"Our assessment is the economy is expanding above its long-term sustainable rate" and inflationary pressures "are building up," he said. That underlined "the importance of fiscal restraint."
Net core Crown debt is forecast to peak at 26.8 percent of GDP in the June 2015 year, slightly up on the Budget forecast of 26.4 percent. Still, the Debt Management Office kept its domestic bond programme unchanged from the Budget, at $8 billion in the current year, falling to $7 billion a year in 2016 through 2018.
The Treasury says fiscal policy will "exert a dampening influence on economic activity over the forecast horizon as slow growth in spending, combined with rising tax revenue, see the fiscal balance improve." It kept unchanged it assessment in the Budget of an "average fiscal impulse" of -0.4 percent.
The Treasury has shaved $2.1 billion off its forecast tax take over the forecast period, reflecting less goods and services tax because of reductions in private consumption and less residents' withholding tax. Still, core tax revenue if forecast to rise to $77.1 billion in 2018 from $61.5 billion in the current year. GST is seen rising to $20.4 billion from $16.1 billion in that time.