On Thursday, Treasury painted a very ugly economic picture for the incoming National government with cash deficits increasing, growth shrinking, tax revenue diminishing and unemployment rising.
Prime Minister elect John Key was told the economic outlook had deteriorated further since the pre-election fiscal update. He did not go
into detail then, but told reporters the scenarios were "a little bit" worse than they had been. "They are more pessimistic but I wouldn't describe it as Armageddon."
Also on Thursday, outgoing Finance Minister Michael Cullen released a Treasury economic update given to him on November 7 - the day before the election. This would have formed the basis of the briefing to Key and his incoming finance minister Bill English.
The main finding in the report was growth levels are likely to be hit even worse by the global financial market turmoil. The economy would suffer from weaker export demand, lower commodity prices, lower housing values and weaker confidence.
The economy is expected now to sputter along at 1.3 per cent growth in the 2010 March year pushing up unemployment to 5.7 per cent (compared to 5.1 per cent in Prefu). Total tax revenue over the next three years is expected to be more than $2.1 billion lower, increasing total cash deficits up until 2011 to more than $2 billion.
Key made it clear he was not willing to change any promises to improve the Government's fiscal position. The argument is that taking an axe to spending could do more damage than good and instead the focus should be on increasing economic growth.
- NZPA
