This could give her an excuse to soften some of the promises made by parties in the coalition Government ahead of the election.
It could also help her justify a possible inevitability that the Government will have to borrow more than planned, including for increasingly costly infrastructure.
ANZ senior economist Miles Workman believes the Treasury could lift its $129 billion forecast bond issuance programme for the next four years by around $5b.
Depending on how much the Government plans to tighten its belt, he reckons this could be the last upward revision for a while.
While Willis has grounds to criticise Labour, it’s worth noting that when the parties now in government promised costly tax cuts and bold investment plans, they knew we were in the midst of an economic downturn.
Indeed, the “fiscal holes” they accused the Labour Government of having in its books were derived from the tax take coming in below forecast.
Willis will want to give people some hope, rather than come across as the Grinch who stole Christmas.
But she’d be better off saving the good news stories for the proper Budget, when the public won’t be distracted by Christmas, and she will have had more time to get her feet under the desk.
Accordingly, Wednesday is likely to include some “announcements of announcements”, as Willis will detail what she’ll reveal at the Budget, and ahead of the Budget.
Certainty will undoubtedly be welcomed by those holding off making investment decisions pending the receipt of more information around the array of commitments in National’s coalition agreements with Act and NZ First.
People will also be interested in how the Government’s tax/spend plans affect inflation, and therefore how the Reserve Bank sets the official cash rate (OCR).
While the Reserve Bank pays attention to how much the Government allocates to various initiatives, it also looks at when this money is physically spent.
In its very hawkish November statement, the Reserve Bank flagged concerns around the amount of government money currently entering the economy.
Accordingly, all eyes will be on when spending cuts will take effect.
Given net migration is at a record high, there will also be interest in how quickly the Treasury sees this falling to a more “normal” level.
Coming back to infrastructure, there’s a very real risk the cost will need to continue to be revised up to avoid projects being cut or delayed.
Because details around how the Government might use public-private partnerships, tolls, value capture, congestion charging, etc are yet to be decided, the impact on the Government’s books could evolve a lot.
BNZ’s head of research Stephen Toplis cautioned the Hyefu would likely paint a rosier picture of the economy than the reality.
The Treasury would’ve prepared its forecasts before the September quarter gross domestic product (GDP) data was released. This showed New Zealand did in fact suffer a recession earlier in the year, and could be in for another period of two quarters of negative growth in a row.
A poorly performing economy means more job losses and reduced tax take.
Furthermore, NZ First made National scrap its proposed tax on foreign buyers of residential property worth more than $2 million, and the Government will no longer receive the $1b of cash proceeds it was banking on, due to carbon credit auctions failing in 2023.
Removing the previous Government’s smokefree policy will see the Government receive more tax revenue from smokers.
It will also save money by increasing benefits by less than the previous Government would have.
“The devil will be in the detail to the extent they can provide the detail,” Toplis concluded.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
