Requirement Could Swell To Over $10 Billion
Government Financing Requirement Could Swell To Over $10 Billion
In the lead up to the release of the December Economic and Fiscal Update, market economists are taking a hard look at the Government's accounts - and they don't like what they are finding.
National Associate Finance David Carter is pleased Dr Cullen's borrowing programme is finally receiving the scrutiny of market economists as the fiscal situation continues to deteriorate.
"In the May Budget, Dr Cullen wiped $2.7 billion off forecast operating balances and flagged a financing requirement of $7.6 billion for the period 2001 to 2005 - a large chunk of which was to be met by rising debt.
"The December Economic and Fiscal Update is likely to wipe another $1.8 billion off operating surpluses on the back of lower growth, and funds are also required for Air New Zealand and the Auckland rail corridor. These factors could see the financing requirement for the 5-year period swell to over $10 billion.
"Add to this the normal refinancing requirements of Government has some economists expecting bond programmes of up to $6 billion per annum.
"Rising debt implications of the increasing cash shortfall are causing some economists to call for the Government to cut its contributions to the super fund - arguing the super fund doesn't add anything to the economy anyway. National agrees.
"Dr Cullen is caught between a rock and a hard place. He's only given himself $815 million new money for his election year Budget, and that needs to cover off rising pressure in health and election year giveaways to an increasingly fractious coalition. $815 million is less than National averaged in new initiatives over the 1990's.
"The pressure is even greater because he knows politically there are two things he can't do. He can't cut super fund contributions - because then his plan is effectively dead -and he knows he can't blow his spending cap again. He got away with it last year, but he won't get away with it again.
"National warned Dr Cullen at the time of his first Budget that the combination of frontloading his expenditure, growth forecasts that were too optimistic and the inevitable spending pressure in election year would see the fiscal pressure build.
" National Bank Chief John Mc Dermott is completely correct when he says the government is playing musical chairs by attempting to increase priority spending, maintain prudent debt levels and stake contributions towards its super fund by raising debt -one chair will be ripped out from under it," says Mr Carter.