Slowing economy will reduce wellbeing
6 June 2019
The Treasury’s economic growth forecasts are significantly more optimistic than other institutions and bring into question whether the Government will be able to run a surplus and meet its own self-imposed debt targets, National’s Finance spokeswoman Amy Adams says.
“Under this Government the economy has slowed from 4 per cent GDP growth to barely 2 per cent because of bad policies, uncertainty and no plan to grow the economy.
“Data compiled by the Parliamentary Library show that the Treasury’s economic forecasts over the next year significantly exceed those by ANZ, Westpac and NZIER. The Treasury’s annual GDP forecasts for the year to March 2020 are 0.7 per cent higher than ANZ and 0.4 per cent higher than NZIER.
“Economic growth is important because it affects how much tax revenue is collected and how much government must spend on demand-driven areas like welfare. Budget 2019 even outlines that if GDP growth is 1 per cent a year lower, then the Government will receive about $865 million less tax revenue.
“If the Treasury’s forecasts do prove too optimistic then the Government will struggle to run a surplus next year without either reducing spending or raising taxes.
“The Government also has very little wriggle room to meet its self-imposed debt target of 20 per cent of GDP by 2022. The Budget showed debt tracking to 19.95 per cent of GDP in 2022. If GDP is slower than the Treasury expect - as now seems likely - then the Government will have no choice but to cut spending, raise taxes on New Zealanders or break its own fiscal responsibility rules.
“A strong economy is the only sustainable way to improve living standards and wellbeing for New Zealanders. Without a strong economy the Government can’t afford to sufficiently fund health, education and infrastructure, or provide tax relief for hardworking New Zealanders.
“The Government seems to be more focused on marketing and PR than putting together a credible plan to grow the economy, support small to medium sized businesses and reward New Zealanders who are working hard to get ahead.”
Note to editors: Attached is a graph compiled by the Parliamentary library that shows respective annual GDP growth forecasts by the Treasury (Budget 2019), ANZ, Westpac and NZIER between March 2019 and March 2020.
The impact of slower growth on tax revenues can be found in the Budget Economic and Fiscal Update at page 57