Stock Takes: Lower tax take to batter the books

National Party Finance spokeswoman Nicola Willis and Finance Minister Grant Robertson. Photo / Greg Bowker

The Government’s finances are expected to be squeezed as businesses make less money and pay less tax, making a tough situation for an elected Government to inherit this year.

“The Government’s books are coming under more pressure from that reduced corporate tax take, while also looking at a slowdown in the domestic economy,” Westpac senior economist Satish Ranchhod said on the Herald’s Stock Takes podcast.

“Against that backdrop, the Government could be looking to increase its bond programme by about $15 billion over the next four to five years.”

Treasury was set to release its pre-election fiscal update, dubbed Prefu, on Tuesday, September 12. The most recent update was at the Budget in May.

Herald Wellington business editor Jenee Tibshraeny said the Government had been increasing its debt issuance for a while now and Westpac’s forecast suggested another 35 per cent increase, to $135b from $100b in December’s update.

“That’s a fairly major revision, in my view at least.”

Ranchhod suggested it wouldn’t end there - more borrowing would likely be needed to provide services and build infrastructure.

“This is the big trade-off that we’re going to face, and it isn’t just the incoming Government, this is something we’ll be wrestling with for quite some time.”

Prime Minister Chris Hipkins yesterday announced a plan to cut almost $4b in Government spending over four years, with 1-2 per cent of costs slashed at major ministries, while National was expected to release its tax policy this week.

So what are the tax policies on the table at the moment, how long will inflation last, when will the Official Cash Rate come down, and can we afford changes to the tax system?

Listen to Ranchhod and Tibshraeny discuss the state of the economy heading into the election in this episode of Stock Takes.

Stock Takes is available on iHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every Wednesday and are brought to you with support from Fisher Funds.