And even though the Treasury has, as expected, dialled back its forecasts for economic growth over the coming year, and tax revenue for the next three years, a couple of positive developments since it closed off its forecasts should largely, if not entirely, offset those effects.
It now expects real gross domestic product growth over the year to June 2020 to slow to 2.2 per cent, from 2.4 per cent now and down from the 3 per cent forecast in May's Budget. But it is sticking to its forecast of 2.8 per cent growth the following year, boosted by fiscal and monetary policy stimulus.
In any case, the shallower near-term growth trajectory is from a significantly higher starting point. That follows Statistics NZ's upward revisions to nominal gross domestic product over the past couple of years in the annual national accounts released three weeks ago.
The statisticians now reckon nominal GDP was $4.2b higher, or about 1.3 per cent higher, in the March 2019 year than the less comprehensive quarterly GDP reports had indicated.
That increase in the level of nominal GDP — a proxy for the tax base — will, in the absence of a recession, roll forward through the years of the forecast period.
The upward revision came too late to be included in the revenue forecasts released on Wednesday, which are for a drop of between $800 million and $1b a year over the next three years. So those numbers now look conservative.
Of course, any such forecasts are hostages to fortune. The other 99.8 per cent of the world economy, as the Finance Minister likes to remind us, is slowing and has not lost its ability to sideswipe the New Zealand economy with some nasty shock. Nor, as White Island reminds us, has Mother Nature.
But another positive recent indicator is the September terms of trade data released last week, which showed New Zealand enjoying an exceptionally favourable mix of export and import prices.
It has been better than this only once — three years ago — in more than 50 years, and is about 19 per cent higher than average over the past 30 years. That boosts national income and the Crown's finances.
Third, even though the net migration gain has been stronger than the Treasury expected at Budget time, the labour market has been tight enough to deliver stronger wage growth than it forecast.
Annual increases in average ordinary time hourly earnings have been running closer to 4 per cent than the 3 per cent the Budget forecast.
The upward revisions to "historical" nominal GDP also make the ratios of net debt and spending to GDP look better.
The increase in capital spending on infrastructure the Finance Minister has just announced is expected to help push the net debt ratio from 19 per cent of GDP now to the less-than-vertiginous height of 21.5 per cent in three years.
Robertson won't need to scrimp and save next May. Photo / File
This is hardly a case of throwing fiscal caution to the wind. It is comfortably within the 15 to 25 per cent range, which the Government now deems prudent.
The average level of net public debt to GDP for advanced economies is 76 per cent, the International Monetary Fund says. The Government could have something like $150b more debt on its books and still be about average on that measure.
Government debt cannot be seen in isolation, however. Household debt is conspicuously high by international standards and the banks rely on importing the savings of foreigners to fund about a quarter of their loan book. The country's net external debt is sitting at the equivalent of just over 50 per cent of GDP.
The Government can borrow cheaply these days. Two weeks ago the Treasury's Debt Management Office got away an issue of five-year bonds at a yield of just over 1 per cent.
Even so, the Crown's interest bill is around $4b a year. In the context of an ageing population and the associated superannuation and healthcare costs, there is an issue of intergenerational equity to be considered before ramping up debt levels too enthusiastically.
It is important, in other words, that debt be used to finance assets from which future taxpayers will benefit.
Only as the details of the additional capital spending on infrastructure are drip-fed out will it be possible to judge it by that standard.
In terms of its expected macro-economic effect, the Treasury expects the additional $12b of capital spending announced this week to boost real GDP by 1.4 per cent over the forecast period to mid-2024 (nearly $4b is expected to remain unspent even by then).
The peak impact, a 0.4 per cent increase in GDP, is forecast for the 2021/22 fiscal year.
Even with that fillip, fiscal policy overall is expected to be contractionary, that is, to subtract from aggregate demand in the economy, for most of the forecast period.
The Half Year Economic and Fiscal Update is not an altogether cheerful document in other respects as well. The Treasury has lowered its estimate for labour productivity growth over the next five years to 0.8 per cent a year, from 0.9 per cent six months ago. It used to think 1.5 per cent was about right.
So if the economy and household incomes are still moving forward, it is with a shorter stride.
