Half-year update has economists guessing, how many billions is 'significant'

Finance Minister Grant Robertson is expected to outline exactly how big the Government's "significant" increase in infrastructure spending is on Wednesday. Photo / Mark Mitchell.

Finance Minister Grant Robertson is expected to announce billions of dollars of new infrastructure spending on Wednesday, as the coalition begins to loosen the purse strings.

On Wednesday Treasury will release the half-year economic and fiscal update, a half-year report on the state of the Crown's balance sheet.

The forecasts are likely to be overshadowed by details of the "significant" increase in spending which Robertson signalled at the Labour Party conference in Whanganui in November.

While he gave no details of how large the package could be, Robertson has since indicated that the Government is moving from a target of having debt below 20 per cent of gross domestic product (GDP) in its first five years in office, to a range with debt of up to 25 per cent GDP.

Previously the 20 per cent target was expected to remain in place until 2022.
Economists said the new range could give the coalition headroom to increase its spending commitments by around $20 billion over the next five years, however most are predicting a smaller announcement this week.

ANZ senior economist Miles Workman said Robertson could announce billions in additional spending while leaving a buffer to lower the risk that debt would rise beyond the upper limit.

"We think the Government could comfortably bump up spending by $5-15 billion, but it might want to hold something back for Budget 2020 and the 2020 election," Workman said.

Robertson's speech last month came amid increasing calls for increases in spending both as a means to bolster the economy and to improve productivity.

While he indicated that Cabinet had already agreed "to a package of infrastructure projects that we will bringing forward into our short-and-medium-term programme" he is not expected to name specific projects on Wednesday.

Prime Minister Jacinda Ardern did, however, announce an additional $400 million in spending on schools at the Labour Party conference.

Jarrod Kerr, chief economist at Kiwibank, who has been advocating for a major increase in infrastructure spending said increasing debt to 25 per cent of GDP was a "step in the right direction".

But the Government could go much further before it risked a credit rating downgrade.
"Ratings agencies are telling us you could go to that sort of level and you're unlocking more towards $100 billion.

"What I'm hoping is that this is a step towards a big bang Budget in May."

BNZ senior economist Craig Ebert said the lack of detail about the plans made it impossible to estimate how much additional spending would be announced.

Given the current capacity constraints in the economy - with unemployment at around 4 per cent - Ebert said it was also unclear how much additional spending would do to stimulate the economy, rather than simply crowd out other investment.

Like in the detail of earlier Budget documents the coalition "have intention to spend a lot of money, but in a lot of cases, they can't. There's just no spare capacity in the economy," Ebert said.

A recent revision by Statistics New Zealand meant it now estimated New Zealand's annual GDP was about $4b larger than previously thought.

This meant New Zealand's debt as a share of GDP would be slightly lower than previously thought, increasing the Government's capacity to raise spending while remaining within its debt targets.