Christopher Luxon makes the National Prefu announcement.
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Christopher Luxon makes the National Prefu announcement.
NOW PLAYING • Focus Live: National Prefu announcement.
Christopher Luxon makes the National Prefu announcement.
Finance Minister Grant Robertson was granted a reprieve when Treasury opened the books today.
Treasury’s Pre-Election Economic and Fiscal Update (Prefu) defied the gloomiest expectations, with no recession forecast and a surplus pencilled in by 2027.
The economy will grow 2.6 per cent on average over the next four years. By 2027, the economy will be $4 billion larger than Treasury’s previous set of forecasts from May, and GDP per capita will be roughly the same.
The Government’s $4b in spending cuts announced in August have ensured the forecast OBEGAL surplus has only been pushed back one year, from 2026 to 2027. It will be $2.1b - far better than feared.
Annual wage growth is forecast to average 4.8 per cent over the next four years compared to CPI inflation of just over 2 per cent, meaning working New Zealanders will be better off in real terms after a period of wage growth struggling to stay up with inflation.
Finance Minister Grant Robertson said the “economy is turning a corner”.
“We have a solid base as we face the challenges ahead,” Robertson said.
On the Campaign: What does the PREFU mean for our politicians and the economy?
The political parties have been waiting for Prefu for weeks - now that it's out, how will it shake up their fiscal and economic plans?
The Herald's Wellington business editor Jenee Tibshraeny joins On the Campaign, our daily election podcast, to run through what this means for the party's election promises.
The left bloc of Labour, the Greens and Te Pāti Māori have just a one in 20 (5.4 per cent) chance of forming a government after electionday, according to the Herald’s poll of polls.
If the election were held this weekend, its odds would be even worse - just 1 per cent.
Hipkins' last stop today: Verrall doesn't accept things are getting worse in the health space
Prime Minister Chris Hipkins and Minister of Health Dr Ayesha Verrall opened the Canterbury Cancer Centre in Christchurch today.
The Government contributed $6.5 million as a shovel-ready post-Covid project in 2020. The centre offers 50 rooms for patients and families of the South Island, and is a space for organisations providing cancer services to co-locate and collaborate from.
“It will be a home away from home for many who are going through a tough time,” Verrall said.
“Labour stands by its record in supporting those with cancer. We set up the Cancer Control Agency, rolled out a nationwide bowel screening programme and purchased more linear accelerator machines. We’re also paying the staff who look after those patients better and building the hospitals that are needed.”
Verrall said Labour had also increased Pharmac’s funding since coming into Government by over 40 per cent. Pharmac’s budget for 2023/24 would be about $1.3 billion.
In contrast, National had frozen it for three years prior to Labour.
“The increase in funding means that since 2017 they have made 214 funding decisions, including 76 new listings and the widening of access to 138 treatments,” Verrall said.
Work was underway to assess whether a bowel cancer screening programme could be expanded in a similar way to cervical cancer screening, which was included in Labour's policy today.
She challenged National on its promises in the health space, pointing out it promised health funding would increase each year but not committing to in line with inflation.
Verrall said Labour took its costings very seriously because if that wasn't done, the health system would be underfunded.
“We've had to address capital infrastructure… There were two years when the National government contributed nothing to capital infrastructure. That's malpractice.”
Overall, Verrall said she didn’t accept things were getting worse in the health space. They had come through Covid-19 “exceptionally well” compared to other countries and made major investments across the board, including in the workforce.
“I understand that it is not yet enough. So we that's why we have to keep going.”
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12 September, 03:09 am
'Labour has left the cupboard bare': Nicola Willis recommits to tax relief plan
Finance spokesperson Nicola Willis said the Treasury's forecasts painted a concerning picture of the economy and the Government's books. "Labour has left the cupboard bare."
She said Kiwis getting ahead have had a handbrake put on them by Labour.
She claimed today's update was Grant Robertson's best-case scenario. "Grant Robertson has never stuck to his pending limits in the past and he is not about to start."
Government spending would be up $23b more than it was expected to be at the pre-election update in 2020, Willis claimed.
Willis re-committed to tax relief already announced which would offer some New Zealanders $250-extra a fortnight. She also committed that every dollar in tax would be "spent wisely."
Asked if Prefu changed National's tax plan, Luxon said "absolutely not".
Willis said revenues raised through the ETS should go towards tax reduction and cited some variability in the forecasts today, when challenged that today's documents showed one aspect of National's costings were out $500 million.
"There is nothing to be proud about here," Luxon said, saying the country would experience "slow, anaemic" growth out of its current technical recession.
Luxon said he was confident National could deliver on the policies announced thus far, alongside its tax plan.
"We're confident we'll be able to find our way," Luxon said in reference to his tax plan.
Willis said National had committed to protecting frontline services and not raiding health or education funding.
She added that a fiscal plan could be developed which would deliver on all of those promises.
Willis countered questions on a $500m hole in National's tax plan by claiming there was a $13b hole in the documents released today. Asked to elaborate, Willis said debt was forecast to rise by $13b in 2027 more than earlier forecasts.
"We will not be needing to spend more money than Labour," Willis said.
Luxon said it was disappointing to see 40,000 people had left the country. he said National's migration target would vary depending on need and ensure it linked with infrastructure and economic shortages.
National would increase health and education budgets each year, but he wouldn't elaborate on how much the increases would be, saying they would be revealed in National's soon-to-be-released fiscal plan.
He wouldn't confirm whether the budgets would be boosted by the rate of inflation.
On Labour's cervical screening policy, Luxon said he was open to looking further into making cancer screening more accessible.
Pinned
12 September, 03:00 am
'Kiwis deserve much better than this': Luxon responds as Prefu defies gloomy expectations
National Party leader Christopher Luxon said it was clear the economy isn't working for Kiwis.
He referenced higher interest rates, food prices and rents in criticising Labour's poor economic management.
"Make no mistake Labour's excessive spending is driving this economic pain," Luxon said, referencing the delay in returning to surplus
"Kiwis deserve much better than this."
He said the economic downturn was set to last until the end of next year when inflation returned below three per cent.
Luxon said it was more than just about numbers, speaking about Kiwi families having to stop swimming lessons to buy groceries, or parents taking up more jobs to pay the bills.
"Life shouldn't be this tough," he said while committing to fixing the economy under a National Government.
He cited the continuing spending increase since the Covid-19 pandemic but claimed there hadn't been the outcomes from that spending boost.
Labour has actively made it harder to get the economy working again, Luxon claimed.
Pinned
12 September, 02:35 am
'We are winning the battle against inflation': Hipkins responds to Prefu announcement
Labour leader Chris Hipkins said Prefu showed the economy was turning a corner and New Zealand was "winning the battle against inflation".
Hipkins said the Government's "careful management" would see the books return to surplus, albeit a year later than forecast in the Budget.
"Overall, I'm pretty pleased with the picture the [Prefu] is showing."
On last night's poll, Hipkins said he took responsibility for that as Labour leader, like he said this morning.
Asked how he would win an election when people wanted change, Hipkins claimed Labour was also offering change by "getting back to basics" and focusing on the cost of living.
"Forecasts can be wrong," Hipkins said of the poll result. He didn't address whether he would need a miracle to win.
"There's still plenty of campaigning ahead," Hipkins said when asked whether there were any weaknesses of National's Christopher Luxon he wanted to exploit.
The cost of living crisis would be over when inflation was back down, wages were growing and New Zealanders could get ahead, Hipkins said.
Labour's fiscal plan would feature "relatively modest" offerings which were paid for.
"We are winning the battle against inflation."
He warned National's tax plan would exacerbate inflation.
On the Greens calling for a wealth tax, Hipkins said there were too many risks associated with a wealth tax.
On migration, Hipkins said it was expected to see a spike after Covid. New Zealand was returning to more normal migration patterns, he said.
He wouldn't go into Labour's migration policy but said the country needed to grow sustainably.
Labour health spokesperson Dr Ayesha Verrall said work was underway to assess whether a bowel cancer screening programme could be expanded in a similar way to cervical cancer screening, which was included in Labour's policy today.
"Politics can be tough business sometimes," Hipkins said when asked about his dropping preferred PM ratings.
He said like with any campaign, there would be "teething issues" but he was feeling buoyant and positive with how it was going so far.
"Hard work is required" was the Hipkins' first reaction to last night's poll that had a very poor result for Labour.
Verrall said Labour took its costings very seriously because if that wasn't done, the health system would be underfunded.
Hipkins said the Labour caucus was feeling "very resolved" following last night's poll.
Pinned
12 September, 01:50 am
Analysis: Prefu shows next Govt facing tough economic trade-offs
Deteriorating finances mean next Government will have very little spending wiggle room.
'You’re doing a great job Chippy': Hipkins receives a warm reception in Christchurch
Earlier, Hipkins visited the bustling Riverside Market in central Christchurch.
It was a largely warm reception, aside from some protesters who were calling for stronger action on climate change. They were moved away by police after complaints from business owners that they were blocking shopfronts and walkways.
But many members of the called out positive words of encouragement for Hipkins, one even giving him a hug, some referencing the recent poor run in the polls.
“You’re doing a great job, Chippy,” one person called out. The Herald can confirm some of those stopping to shake his hand and call out words of support in front of cameras were Labour Party volunteers. Some could be seen with Labour Party campaign t-shirts on underneath their jackets.
However, many were also simply members of the public supportive of the Labour leader.
Hipkins posed for photos with dozens of people, many excited to meet the current Prime Minister.
Hipkins also met a few Australians, including a couple on a snowboard trip in the South Island who had got engaged the day before in Wānaka.
“Congratulations!” he said to them.
To others he simply wanted to get their advice on what to get for lunch.
“So many options,” he remarked to one couple.
In the end, from the dozens of eateries with food from across the planet - delicious dumplings to tacos and burgers - Hipkins opted for his old staple of a steak and cheese pie from the Butcher’s Pie Shop.
“Pretty good,” remarked Hipkins, but adding it would not be “diplomatic” to compare it to his local Upper Hutt bakery.
The Herald understands a souvlaki from Christchurch institution Dimitri’s was in the shortlist, but unfortunately it was closed.
Shortly after Hipkins ran into Anthony “Harries” Carroll from the TV show Bondi Rescue, who argued Hipkins had in fact chosen a “good old Aussie meat pie”.
Pinned
12 September, 01:18 am
Grant Robertson gets reprieve - no recession, surplus forecast
Treasury reckons the economy will grow, and the books will get to surplus - eventually.
Hipkins tastes his own gelato flavour, says Luxon's sounds 'overly sweet'
Hipkins will be hoping the election pans out a little more like his effort at Rollickin Gelato Cafe today than recent polls, tying with Christopher Luxon in the great scoop off.
Hipkins delivered eight scoops in 60 seconds, matching Luxon's effort last week. But he still paled in comparison to the staff member Verity he was up against who scooped 14 cones.
The visit also included the unveiling of Hipkins' own specialty flavour - Orange Chic Chippy, a pun on the Labour leader's nickname and hair colour.
Hipkins also had a jab at rival Luxon's flavour, Blueberry Lux, saying it sounded "overly sweet".
Photo / George Heard
STORY CONTINUES
Housing market roars into life, high migration returns
But that is where the good news ends.
The road to surpluses is paved with deeper deficits in the short term. The deficit this year is now expected to be $10b, up from $6.9b forecast at the 2023 budget. Next year’s deficit is expected to be $11.4b, up from $7.6b forecast at the Budget.
Those large deficits contribute to much larger borrowing over the four-year forecast period. As recently as May, net core Crown debt was forecast to be $181b in 2027. These forecasts have revised that upwards to $193.3b, or 39.6 per cent of GDP.
Most of the economic growth occurs in the back end of the forecasts.
Finance Minister Grant Robertson arriving for his presentation at the Prefu lockup at the Treasury in Wellington. Photo / Mark Mitchell
The economy is expected to grow just 1.3 per cent next year, and 2 per cent in 2025, only rising to 3.3 per cent in 2026.
The drivers of this economic growth are a cocktail Labour has so far strived to avoid: a resurgent housing market and higher migration.
“The main driver [of growth is] the recent surge in net migration, which contributed to an earlier stabilisation in house prices and supported stronger employment growth,” Treasury said.
Focus: Finance Minister Grant Robertson at today's prefu
Finance Minister Grant Robertson's summary of today's prefu at the Treasury. Video / Mark Mitchell ...
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House prices are expected to rise slowly at first, before reaching annual growth of 3.9 per cent by June 2027. Investment in the construction of new homes is expected to slow, but only slightly.
Unemployment is expected to rise to 5.4 per cent next year, and end the forecast period on 4.6 per cent, higher than now.
Inflation is expected to stay higher for longer, with CPI inflation running at 3.8 per cent next year, falling to 2.5 per cent in 2025 and 2.1 per cent in 2026. That forecast is worse than what Treasury was forecasting back in May, when it reckoned inflation would be 3.3 per cent in 2024, and 2.6 per cent in 2025.
This will keep interest rates higher for longer. Real government consumption is trending down, a figure Robertson used to show the Government was keeping up its side of the bargain when it comes to fighting inflation.
Optimistic forecasts - decade of austerity required
The forecasts were underpinned by a number of assumptions that seem optimistic.
The borrowing numbers do not include most of the cost of building things like the Auckland Light Rail project, currently costed at more than $14b, or the building of the new Waitematā crossing, which could run to more than $40b.
Robertson said many of these costs fell outside of the forecast period, and Treasury said how they had been funded had not yet been determined.
Treasury warned that there were “a number of significant infrastructure investments that have been announced, or are in pre-implementation stages, but which have limited, or no funding committed yet, and often no clear funding source identified”.
In this, it included the likes of Auckland Light Rail, The Waitematā Harbour Crossing and Let’s Get Wellington Moving.
The forecasts also assume that the Government will run incredibly small budgets for the foreseeable future, baking in 15 years of relative austerity.
Its central forecast assumes that next year’s budget includes an operating allowance (Treasury jargon for “new day-to-day spending”) of $3.5b. The next two years have their allowances cut thanks to decisions Robertson made last month to $3.25b in 2025 and $3b in 2026.
Every budget thereafter has an operating allowance rising by 2 per cent.
What that means is that the forecasts assume that the Government does not run a budget with new spending as large as this year’s budget until at least 2037.
To put this in perspective, the Government’s last three budgets have averaged operating allowances of $4.8b.
This means the Prefu forecasts a decade of relative austerity with each budget funding cost pressures, but leaving nothing left for new policies, including goodies dangled in the many elections between now and then.
This could be a challenge.
Treasury included a warning in the forecasts saying that “as well as meeting cost pressures in the future, Budget allowances are expected to manage the fiscal impact from new policy decisions made by the Government”.
“Based on past analysis, the remaining Budget operating allowances should be broadly sufficient to meet remaining critical cost pressures not already funded, however, significant trade-offs will be required,” officials warned.
The less jargony translation of that is that these forecasts assume just enough money to keep the lights on and deal with cost pressures in the delivery of government services, but not enough to fund new policy ideas - the kind that get thrown around in an election campaign.
In documents released to the Heraldunder the Official Information Act, Treasury warned 40 to 50 per cent of new spending would need to go straight to the Health system, just to keep the lights on. That leaves the other half of new spending to deal with cost pressures across the rest of the Government.
Funding both cost pressures and new policies would require cuts to existing spending or revenue increases somewhere else.
That is a problem for both Labour and the party that wants to replace them, National.
Treasury helpfully published an alternative scenario of higher operating allowances, which modelled allowances of $4.5b in budget 2024 (still a smaller allowance than 2023), falling again to $4.25 in 2025 and $4b in 2026 and then rising in 2 per cent a year from 2027.
If the Government followed this track it would mean never returning to surplus, with deficits growing nearly each year to 2.3 per cent of GDP by 2037. Net debt would be more than double where it is currently forecast to be.
This scenario is essentially a thought experiment - no one, Labour or National, would ever allow the books to get into such a state. But they show that the era of easy decisions is over and that if we have a difficult choice between a future of very small budgets, or new spending funded by cuts, or tax rises.
The assumptions underpinning this nightmare scenario are actually not so outlandish. They actually assume the Government running smaller operating allowances than it has averaged this term each year until 2036.
Not a great conversation starter for an election campaign.
