A pre-election fiscal update is one of the most valuable forces for economic stability in our political system. Introduced by Ruth Richardson more than 20 years ago, it forces all parties at elections to reconcile their promises with the Treasury's best estimates of tax revenue, public spending and the state of the economy over the next four years. The "prefu" issued yesterday expects the economy to grow at a good clip of 3.8 per cent in the current year, less than the 4 per cent expected in the May Budget, and to drop to 3 per cent, 2.2 and 2.1 in the next term of Parliament. So when the Government is asked, is this as good as it gets, the answer is, yes indeed.
The heavy drop in dairy prices since the Budget is the main reason for the reduced growth forecast but immigration is expected to keep the population growing for a while yet and of course the Canterbury rebuild will continue. That activity is no guarantee of rising revenue for any party to spend. Tax receipts have been lower than expected since the Budget and it will be to the Government's relief that the Treasury still expects a small surplus in the current year ending June, 2015.
It is not to the Government's credit that the $297 million surplus has been achieved by denying workers and employers a cut in accident compensation levies.
ACC minister Judith Collins has admitted the reason the Government has ignored ACC's recommendation for bigger cuts for the third year running was, "because we need to get to surplus. We believe the surplus is something that is very important for not only the Government but also for every business that has to borrow money."
That is true. The surplus may be a tiny fraction of a $70 billion Budget but as a symbol of sound public finances it is great value for the country's credit rating.
But it is also true that the economy suffers whenever excessive revenue is taken from one source to subsidise another. Employers, the self-employed and wage earners are being charged more than their insurance requires so that the Government need not cut some of its intended spending.
National has given itself an allowance of $1.5 billion in additional spending a year over the next four years. That figure is the ceiling on promises that any party can make at the election unless it also announces credible ways to raise additional revenue.
Labour has already promised $6.5 billion on the Herald's "porkometer" tally but it also proposes to raise the top rate of income tax and introduce a capital gains tax on sales of rental houses. The Greens want to spent an extra billion to alleviate child poverty, paid from a 40 per cent tax rate on annual incomes above $140,000.
New Zealand First has not been as clear on how it would afford to take GST off food and rates. When pinned down on the point by Peter Dunne on a TV3 debate recently, Winston Peters said it would come from National's projected surpluses. National is reserving room in the surplus for some tax cuts of its own though yesterday Finance Minister Bill English said they would not be announced before the election. That means the Government, if re-elected, can wait until it is banking annual surpluses rather than merely projecting them.
Even then, it ought to resume contributions to the Cullen fund and reduce debt more rapidly before it contemplates tax cuts.
The prefu reinforces Mr English's message that the surplus is coming but it is not a basis for lavish election promises from any party.
It is a remarkable achievement after the recession and the earthquakes, no more than that. Now the surplus needs to survive the election.