Robert MacCulloch
Robert MacCulloch is a native of New Zealand and worked at the Reserve Bank of NZ before he travelled to the UK to complete a PhD in Economics at Oxford University.
Should the assertions in this blog be even broadly correct, Finance Minister Willis has a lot of explaining to do. How come? Well, the long-term fiscal situation is one of my fields in economics – we flew out the world’s guru on such matters, Larry “Fiscal Gap” Kotlikoff, from the US several years ago. I organized a meeting between him and PM English, as well as other members of parliament.
The graph below comes from the NZ Treasury’s long-term fiscal forecasts. It was released in 2021. The forecast for 2035 is that the budget will be in deficit by about two per cent of GDP (as measured by the excess of Core Crown primary expenses over Core Crown primary revenues). Given GDP is around $400 billion, we’re talking about $8 billion per annum. That kind of number causes our national debt to explode. The excess is mainly due to the ageing population putting pressures on health and pensions spending.
In this graph, the budget had been forecast to go back into balance by 2024 (and be one billion dollars in surplus by the following year). But that is no longer happening. Since this forecast was published in 2021, the fiscal situation in NZ has sharply deteriorated. Government expenses now far exceed revenues – NZ is mired in huge deficits. Yet magically, Willis conjured up the graph below a few months ago in her Budget 2024:
Take a look at her projection to 2035. It shows Core Crown revenues greatly exceeding expenses by two per cent of GDP, corresponding to about eight billion dollars per annum. Miraculously, the finance minister has reported a gigantic 16 billion dollars per annum positive reversal ($8 billion - (-$8 billion)) in her budget, compared to Treasury’s 2021 forecasts, all in the space of a few years. But over the period from 2021 to 2024, NZ’s deficit outlook sank as interest costs on government debt rose, taxes were cut by adjusting brackets for inflation, recessions took hold and GDP forecasts got dramatically revised downward. Did Willis fake her forecasts?
This article was originally published by Down to Earth Kiwi.
