Editorial: National’s mini-Budget grim economic outlook no surprise but political hyperbole doesn’t help

EDITORIAL

It is entirely understandable the new Government should paint an austere economic picture in its first mini-Budget.

That’s politics.

And the outlook for the next year is genuinely tough. We may well be in recession now and in the year ahead we will see unemployment on the rise, while inflation and interest rates continue to put the squeeze on living costs.

But with accusations of “economic vandalism”, Nicola Willis risks straying into hyperbole that will only serve to undercut her credibility in the long run.

The paradox in the negative rhetoric is that, if things are really as bad as Willis suggests, then we surely cannot afford tax cuts.

Yet National remains committed to this policy, effectively creating a self-inflicted fiscal restraint.

It is obvious that if yesterday’s Treasury numbers were being presented by former Finance Minister Grant Robertson, they’d have landed with a considerably more optimistic spin.

The truth, as always, lies somewhere between the bipartisan political extremes.

It is revealing that financial markets were unmoved yesterday. There was nothing material in the Treasury documents that markets considered new.

The Half Year Fiscal Economic Update (Hyefu) landed in line with expectations. As noted by ANZ chief economist Sharon Zollner, it was - if anything - a little optimistic, having been signed off before the latest GDP numbers showed the economy slowing faster than many expected.

The economic forecasts were also in line with the consensus of market economists, as compiled by the New Zealand Institute of Economic Research earlier this month.

Treasury sees the New Zealand economy continuing to grow across the forecast period - albeit at a subdued level.

Unemployment is expected to peak at just 5.2 per cent - lower than the average rate across the full nine years of the last National Government. That looks like a huge win relative to the scale of economic damage that was forecast as Covid hit in early 2020.

Inflation is forecast to continue falling away through 2024 and be back to 2.5 per cent by mid-2025. Meanwhile, wage growth is expected to stay strong, slipping from an annual rate of 6.7 per cent now to 5.1 per cent by mid-2025.

There are risks these numbers end up being worse than Treasury has forecast. But then they might equally be better.

If there is anything we can be confident about, it is that events will continue to disrupt and transform our economy.

All forecasts are precarious and those that look out further than three to six months seldom land on target.

Meanwhile it is the job of the Finance Minister to instil economic confidence and ensure we don’t exacerbate recessionary risk with unnecessary fear and gloom.

Perhaps, with this message of fiscal dissatisfaction now delivered, we will see a more upbeat and optimistic Willis emerge in the new year.

If National is serious about boosting New Zealand’s economic performance and minimising the damage of the economic contraction we now face, then it needs to quickly shift its focus to the immediate future and focus on the pathway back to economic strength.