By Vernon Small
deputy political editor
The Treasury's pre-election economic outlook will assume National's $400 million in tax cuts will go ahead on April 1, even though a majority of Parliament does not back the plan.
The Reserve Bank will then incorporate the cuts into its monetary policy statement, due on November
17.
The bank uses the Treasury's latest official fiscal numbers in its statements, a spokesman for Governor Don Brash said.
On present polling Labour looks likely to lead the next Government and has pledged to raise an extra $400 million in taxes and to spend more, which suggests the Treasury and Reserve Bank may find themselves well astray in their forecasts.
The Secretary to the Treasury, Dr Allan Bollard said the cabinet had given the cuts approval in a "green paper" so the pre-election economic and fiscal update, to be released on October 21, must incorporate them.
Prime Minister Jenny Shipley canned plans to pass the tax cuts into law before the election, after opposition from several Government supporters, including the Minister of Maori Affairs, Tau Henare.
The update will contain all the economic and fiscal data normally included in a Budget, including alternative outlooks if the economy performs better or worse than the Treasury's central scenario.
It was introduced as part of the 1993 Fiscal Responsibility Act, designed to prevent unexpected shocks for incoming Governments, like the bailout of the Bank of New Zealand after the 1990 election.
But under public sector rules, the Treasurer, Bill English, will receive details ahead of its release, giving him a potential political advantage between now and October 21.
"The Treasurer is the Treasurer," Dr Bollard said, explaining why Mr English would receive information ahead of the official release.
Economic forecasts for the update will be finalised today and fiscal forecasts will be completed on October 6.
Since the Treasury prepared its last forecasts in April the world economic outlook has improved, but the current account has worsened.
The surplus for the June 1999 year was $400 million below forecast and the economy went unexpectedly into reverse by 0.3 per cent in the June quarter.
The Treasury had forecast growth of 0.4 per cent in the three months to June.
A sharp rise in oil prices in recent months would also be factored into the outlook.
The update will give the first taste of the Treasury's view of the economy in the 2002-2003 year.
