What to expect when the Government opens the books

Finance Minister Grant Robertson will publish details of the next Budget on Wednesday. Photo / Mark Mitchell

ANALYSIS:

The countdown to Budget 2022 begins in earnest on Wednesday when the Government publishes two of the most important financial documents of the year.

The first is the Half-Year Economic and Fiscal Update, or HYEFU.

It is a book of forecasts that sets out what Treasury thinks the economy will look like in the short and medium-term, and what that means for the Government's books.

There are two big things to look for in these forecasts.

The first is a big political spat over the state of the Government's books.

New National finance spokesman Simon Bridges has been accusing the Government of running a structural deficit.

But it has been a whole year since Treasury weighed in on whether there is a "structural" deficit or not.

A structural deficit occurs if there is still a deficit between tax revenue and expenditure after Treasury strips out one-off expenditure to help the economy during the downturn.

The Government is currently running deficits, but it is not clear if these are structural.

The last time this figure was put together was last year, when it found there was a small structural deficit of 1.1 per cent per cent of GDP at the end of the forecast period in 2024.

Treasury also said it would be working on a new way to measure structural deficits, because the Government's Covid support spending was making it difficult to work out what was structural spending and what was "one-off".

Robertson told media last week that it was "arguable" that there was a structural deficit.

"I'd like to get us to HYEFU next week and we can have a conversation about the latest numbers," Robertson said.

Treasury promised at the Budget to publish a more detailed note about how it would calculate this figure before the end of the year.

When asked whether this note would be published at HYEFU, Robertson said "not all of it" would be.

"Some of that you will be waiting until Budget 2022 for," Robertson said.

Another question is what the Reserve Bank and Treasury plan to do with the $53 billion worth of Government debt currently held by the Bank.

The Bank bought that debt by printing digital money in an effort to keep interest rates low. In the future, it may want to reduce the amount of debt it holds, so that interest rates edge higher.

This is a question for Treasury as much as it is for the Bank.

The Reserve Bank can only sell that debt back to Treasury, which means the Government now has a choice between using its account at the Reserve Bank to buy back the bonds, or whether it wants to issue new debt to buy old debt - rolling one into the other.

The Government will also publish its Budget Policy Statement, which sets out how much new spending it intends to put into the next budget.

It also sets out the priorities for that budget. One priority will be climate change, and Robertson has foreshadowed that he will use the BPS to discuss details of a scheme to fund the climate-change policies.

This was foreshadowed at the Budget, where Robertson criticised the current budget process for the way it forces the Government to think about the short-term, rather than the long-term.

This could involve a method of directing money raised by the emissions trading scheme and directing it directly towards climate change policies (a policy announced at the Budget).

One option considered by Treasury is to establish climate change as its own "vote" in future Budgets, in line with a recommendation from the Climate Change Commission.
The Parliamentary Commissioner for the Environment raised concerns about short-termism in government budgets in a report released on Tuesday.