Editorial: Too soon to jump to stimulus

Finance Minister Bill English, with Prime Minister John Key. Photo / Mark Mitchell

The elusive surplus has disappeared again. It is just two months since John Key and Bill English were celebrating the final figure for 2014-15, an unexpected surplus. This week, the Treasury's half-yearly update found the .4 billion surplus had turned into a deficit of the same amount and Mr English has reverted to the line that the amount is marginal and will not change its fiscal arrangements. The Budget is "broadly" in balance and no spending cuts are necessary.

In fact, he is adding $1 billion to his budget for capital spending next year, cheerfully declaring he will borrow it, adding to the public debt. This Government is in no hurry to reduce the debt to the level it inherited from Labour, a level that gave National room to run large deficits through the last recession. We can only hope the next one does not arrive before 2020, when the Government expects to have net debt down to a level of safety.

Right now it sounds more worried about a slowing of economic growth this year from the expected 3.1 per cent to 2.1 per cent. The Treasury now expects growth of 2.4 per cent in the current year, down from the 2.8 per cent in the Budget forecast, and there is talk of a need for a stimulant.

The Government should be careful. Even 2 per cent growth is healthy by comparison with our trading partners. Population growth continues and that may be all the stimulant we need. Net immigration reached a record high of 62,000 in the year to October and that rate of inflow is expected to continue through the summer. House building in Auckland is increasing as the Christchurch rebuild slows.

The most troubling feature of the Treasury's latest outlook is a rise in unemployment from 6 per cent in September to 6.5 per cent by March. But unemployment is better addressed by helping people move for jobs (particularly if that means to areas with affordable housing), not make-work schemes, even if the Reserve Bank governor is hinting that a little more infrastructure spending would be helpful. The bank wants to see inflation rise to within its 1-3 per cent target but it, too, should relax. The Treasury expects inflation to be 1.9 per cent by the middle of next year, thanks to a lower dollar lifting the cost of imports.

The Finance Minister's additional $1 billion allocation next year will raise capital spending to $11.5 billion during the next two years, of which $2.6 billion will be spent on transport. He has not said whether that would include a contribution the Auckland Council's projected $3 billion underground rail link, but it would seem possible. An announcement soon would neutralise that issue for next year's local elections. Any decision, however, should be based on the project's merits, not as an economic stimulant.

With continuing population growth and most exports doing well, the economy is in good health. Dairy prices might not fully recover next year but meat, horticultural products and seafood exports are enjoying a lower exchange rate as the US dollar rises. There is no reason for an artificial stimulus and many reasons to expect a happy new year.