Stock Takes podcast: ANZ economist on what Government needs to focus on in Budget 2023

Finance Minister Grant Robertson faces a tough balancing act. Photo / NZME

In the lead-up to this week’s Budget, Finance Minister Grant Robertson confirmed that the Government had found $4 billion in savings to top up its coffers.

And while this might sound like a massive sum of money, ANZ senior economist Miles Workman tells the Herald’s Stock Takes podcast it’s relatively small when viewed in the context of Government spending spread over four years.

“I would call $4 billion a rounding error as it equates to only about a billion dollars a year,” says Workman.

“For context, if you look at Government expenses as they were forecast by Treasury in December it came in at $129 billion.

“If you were to rewind the clock to pre-Covid 2019, Government expenses were $87 billion. So between 2019 and 2023, that’s a $42 billion increase in what the Government is spending on an annual basis. If you were to take a billion dollars off that, you’d still have a $41 billion increase.”

The Government has stressed that this will be a no-frills Budget that focuses on major issues facing New Zealand right now. Workman says the Government needs to focus on getting macroeconomics on track before shifting attention to microeconomics.

“The Government and the Reserve Bank need to get their basics right. They need to get the economy on a sustainable path, with the CPI inflation back toward its 2 per cent target midpoint and the labour market running at a more sustainable level,” says Workman in reference to those big macroeconomic challenges.

He adds that Government also needs to ensure that the current account deficit is reduced and returns to more sustainable levels.

“Once that’s achieved, there is more scope to start talking and thinking about getting the microeconomics right, and addressing the distribution of wealth and divvying up the Government’s spending.”

The challenge here is that the Government will, however, have to spend some money on repairing the enormous damage caused by Cyclone Gabrielle and the Auckland Anniversary Day floods. So far, the Government has earmarked $1.1 billion toward getting that work done.

“That’s come at a very bad time because it means that even after reprioritisations they’re probably going to have to increase their spending,” says Workman.

For now, the Government has ruled out the introduction of any significant tax to cover that cost – meaning that this money will need to come from somewhere.

“The Minister has found that $4 billion under the sofa cushions, so they can use that to take a bit of the pressure off, but the rest of it will have to come from debt funding. So, ultimately, that means in all likelihood a delay to surplus, higher than otherwise Government debt and bit more inflationary pressure out there for the Reserve Bank to think about.”

The combined effect of this presents a tight balancing act for the Government as it looks to keep its spending tight, while also ensuring that our damaged cities are rebuilt.

“There’ll be a big focus on getting the basics right and offering a clear path to returning the books to surplus… Now is not the right time for more fiscal stimulus. We need to see a path back to consolidation, otherwise, the direct impact on everyday people in New Zealand could be quite drastic.”

Listen to the full episode of the Stock Takes podcast for more from Workman on Budget 2023.

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.