As investors, economists, commentators and hangers-on headed to the Treasury to crunch through chunky numbers today, former PM Jim Bolger recounted a nasty surprise he swore nobody would have to experience again.
The pre-election economic and fiscal update (Prefu) being released today has its roots in a volatile, cantankerous time in New Zealand’s economy and politics.
After the Fourth Labour Government, National had a nasty surprise when it took over in 1990 and found the BNZ in a parlous state.
Former Prime Minister Jim Bolger said public statements from his predecessor Mike Moore spawned the need for Prefu.
“He said on many, many, many occasions the budget was balanced, it was in surplus, which was totally false. There was no surplus. There was a huge deficit,” Bolger told the Herald this morning.
“The officials made contact with my team on the Saturday of the election, and they said they had to see me on the Sunday. I agreed to do it and that is when they told the truth about the economy.”
That National party Government under Bolger included Finance Minister Ruth Richardson, later famed or notorious for the 1991 Mother of all Budgets.
“She and I got together and said: This should never happen again.”
Bolger said he and Richardson agreed on the need for more transparency about the state of public finances ahead of elections.
The Public Finance Act was changed and the Prefu must be published between 20 and 30 working days before the election date.
Bolger said that ensured politicians - and the broader public - had an honest set of economic data in the public domain.
“The public are voting on known facts, not fiction. It’s an important part of our democracy.”
Ahead of the Prefu publication he added: “We’ll find out later today what the true state of the economy is.”
Former Finance Minister David Caygill, who served in the Fourth Labour Government, said the Prefu had its uses - but also limitations.
“It’s useful to the extent that it avoids a situation which did occur in 1990. The incoming National government was surprised to discover the state of the BNZ,” Caygill said today.
“What I will look for in the Prefu is: How is our net debt looking ... How much debt are we carrying relative to our GDP? Not private debt, because that’s spread over all of the economy, but public debt held by government on behalf of taxpayers.”
Caygill did not expect this number today to be mood-enhancing.
“It’ll be very surprising if the answer is ‘relatively manageable, thank you’.”
Despite that, Caygill said the country’s overall situation was not bad, especially considering the turmoil of the Covid pandemic.
“We’ve just gone through an extraordinary epidemic. We survived that in better shape than many other countries and then we went straight into a surge of inflation above what we had experienced for many decades.”
He said inflation today was easier to recover from than freakishly high rates in the 1970s stemming from oil shocks and Britain’s entry into the European Economic Community.
“I remember when my wife and I were paying 23 per cent on our home loan,” he said of the 1980s.
And Caygill said despite election rhetoric, an objective National Party commentator or supporter should admit the economy was in relatively good shape in spite of the huge disruptions from Covid.
Prefu data wasn’t much use for campaigning, he said, unless a party was willing to wait till the last few weeks in a campaign to unleash its economic policies.
“It isn’t as useful as perhaps people expect, as by the time the Prefu comes out, almost all the financial commitments have been made by political parties. It’s far too late to change your policy settings.”
Last time, Treasury was way off with some Prefu predictions.
It expected unemployment to peak at 7.8 per cent in the March 2022 quarter. In fact it was just 3.2 per cent, and the country was on the brink of a major worker shortage.
Caygill said many major predictions of the past three years, not just from Treasury, had gone haywire.
China’s post-pandemic economic recovery was very sluggish, but the USA had rebounded with much more vigour than many expected.
The former finance minister said New Zealand was vulnerable to short-term shocks.
“It’s always worth remembering New Zealand’s a small country with a relatively open economy.
“The further out you go, the less meaningful the figures are.”
John Weekes is online business editor. He has covered courts, politics, crime and consumer affairs. He rejoined the Herald in 2020, previously working at Stuff and News Corp Australia.