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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.
Labour’s finance spokesman Grant Robertson said the “economy is turning a corner”.
“We have a solid base as we face the challenges ahead,” Robertson said.
But there’s plenty for National to crow about too. The surplus has been delayed yet again. It was originally forecast for 2025, then pushed back to 2026, and now forecast for 2027. Each Treasury forecast has revised upwards the amount of borrowing we will be doing in the next few years. In the Half Year Economic and Fiscal Update (Hyefu) 2021, net core Crown debt was $138b by 2027.
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.
Migration forecasts have been revised upwards significantly. In the September 2023 quarter, annual net migration is forecast to peak close to 100,000, about 33,000 higher than forecast as recently as May.
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.
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.
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.
