Books point to tight cost pressures ahead for new Government

It's a big day for new Finance Minister Grant Robertson as Treasury revises its forecasts. Photo / Mark Mitchell

The Labour-led Government will have to spend more to meet its promises but will remain disciplined, says Finance Minister Grant Robertson.

"We do have to be disciplined but ambitious at the same time and we believe we have the balance right."

Treasury is forecasting slightly softer economic growth in the next couple of years than it had in its pre-election forecasts but then slightly higher growth in the last two years of the forecast.

The economy is forecast to expand on average by 2.9 per cent a year over the next five years.

The Government will borrow more and surpluses are forecast to be slightly smaller than National's.

The amount the Government has set aside for unallocated spending will be bigger in next year's Budget at $2.6 billion, compared to National $1.7b, and fairly similar to the years following that at $1.875b a year.

But the unallocated allowances also have to fund the policy agreements it made with New Zealand First and the Greens which, excluding the 100-day plan, is $15.1b in operating expenditure on current estimates and leaves only $6.6b of headroom available for all other cost pressures over the next four years across all of government spending.

The cost of the 100-cay plan policies is already factored into Treasury's forecasts.

Robertson acknowledged the cost pressures ahead but said they were not unusual.

"Every Government faces cost pressures from wages in the wider state sector, especially Labour Governments coming in after Governments that haven't been as generous as they should have been to our teachers and our nurses."

At the opening of the books at Parliament, Robertson also provided details of the Government's families package to replace the one passed after National's May Budget.

He said an estimated 384,000 families with children would be better off by an average $75 a week by its full implementation in 2020-21.

That compared to the Budget 2017 package in which 365,000 families would have been better off by an average $39 a week.

Capital commitments within the 100-day plan are to resume contributions to the New Zealand Superannuation Fund, which will begin this week at $500 million and $2 billion for the Kiwibuild programme.

Capital allowances outside the 100-day plan will be $12.6 b over four years, which will include $3.6 b for New Zealand First's Provisional Growth Fund and $100 m for the Green Party's Green Investment Fund.

When asked if this left enough for other capital projects he said: "It's the amount we have got and we'll make it work."

In Treasury's update since the Pre-election update, it forecasts economic growth to increase by 2.9 per cent in the year to June 2018 (3.2 in Prefu), followed by 3.6 per cent (3.7), 3.0 per cent 2.8), and 2.6 per cent (2.3).

Unemployment is forecast to be 4.6 per cent in current year (4.7 in Prefu), followed by 4.4 per cent (4.4) , 4.2 per cent (4.3), and 4 per cent (4.3).

Inflation is now forecast to be 2 per cent in the current financial year (1.3 in Prefu), 1.9 per cent, 2.1 per cent (2.1), 2.2 per cent (2.1) and 2.2 per cent.

OBEGAL (Operating Balance Excluding Gains and Losses) is forecast to be $2.5 billion in the current year ($2.9 billion in Prefu), $2.8 billion (($3.5 billion), $5 billion (5.7 billion), $6.5 billion ($6.4 billion) and reaching $8.8 billion in 2022 – 23.