Election 2023 live updates: Grant Robertson gets reprieve as Prefu predicts no recession, surplus forecast
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.
STORY CONTINUES AFTER BLOG
On the Campaign: What does the PREFU mean for our politicians and the economy?
Natasha Gordon
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.
Polls shows Labour’s chances evaporating, National’s soaring
Natasha Gordon
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.
Read more...
Hipkins' last stop today: Verrall doesn't accept things are getting worse in the health space
Natasha Gordon
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.”
'Labour has left the cupboard bare': Nicola Willis recommits to tax relief plan
Natasha Gordon
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.
'Kiwis deserve much better than this': Luxon responds as Prefu defies gloomy expectations
Natasha Gordon
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.
'We are winning the battle against inflation': Hipkins responds to Prefu announcement
Natasha Gordon
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.
Analysis: Prefu shows next Govt facing tough economic trade-offs
Natasha Gordon
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
Natasha Gordon
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”.
Grant Robertson gets reprieve - no recession, surplus forecast
Natasha Gordon
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'
Vera Alves
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
Vera Alves
Chris Hipkins visits Rollickin Gelato in Christchurch. Photos / George Heard
Former PM recalls wild and wobbly times spawning Prefu, an ‘important part of our democracy’
Vera Alves
As investors, economists, commentators and hangers-on headed to the Treasury to crunch through chunky numbers today, former PM Jim Bolger recounted a nasty surprise he swore nobody would have to experience again.
Vera Alves
Chris Hipkins is out and about meeting Christchurch voters today.
Photos / George Heard
Vera Alves
Audrey Young - Even an economic miracle can’t save Labour now
Vera Alves
Grant Robertson may be comforted by the fact that things would be so much worse if he had not cut $4 billion out of his spending plans recently when tax revenue weakened.
One outcome of the polls, however, is that even more scrutiny is likely to be applied to National’s plans and to shadow finance minister Nicola Willis.
Climate protesters show up to Hipkins' market visit
Vera Alves
About 10 climate justice protesters have turned up at Hipkins' visit to Harbourside Market in Christchurch.
Their signs call for no new airports, a reference to the new airport being proposed in Central Otago.
They are also protesting Rocket Lab, with a sign against the launching of US military satellites.
They have been moved away from police after local business owners complained about them blocking entrances.
🎧 PODCAST: 'Trainwreck' interviews and packed policy announcements
Vera Alves
Missed yesterday's campaigning? Catch up with On the Campaign, the Herald's daily election podcast - and make sure to follow for a recap on all you need to know from Prefu!
EXPLAINER: The government is releasing the Prefu today - what is it and why does it matter?
Vera Alves
How hefty or depleted the public purse is will be revealed at the pre-election economic and fiscal update (Prefu) from 1pm. Here's what you should know about what's coming and what it means ahead of the election.
Vera Alves
Prime Minister Chris Hipkins appeared on Canterbury Mornings with John MacDonald on Newstalk ZB today during his Christchurch visit. Photo / George Heard
Pharmacists explain how removing prescription fee made 'huge difference'
Vera Alves
Labour leader Chris Hipkins has started his day of Christchurch campaigning with a visit to Selwyn Village Pharmacy.
There owner and pharmacist Des Bailey told him that the free prescriptions policy had made a “huge difference” to their work.
Bailey, along with fellow pharmacists and Christchurch chemist owners Maria Morley-Bunker and Simon Church, said they had seen dramatic reductions in the number of scripts not picked up since the $5 fee was removed.
Church said his pharmacy, in a high deprivation part of the city, about 20 per cent of prescriptions were previously not picked up due to the cost. While some were still not being collected this was largely because people still did not realise they were now free.
The pharmacists told Hipkins they would previously spend about two to three hours a day discussing payments and costs with customers, but now they could use that time to discuss their medication.
Morley-Bunker said National’s plan to reintroduce the fees would add more administration to their work and take time away from their core work. The pharmacists also called on politicians to extend the winter health plan with free medications.
Government opens the books with Pre-Election Economic and Fiscal Update - how bad is it?
Vera Alves
This afternoon, the Government “opens the books”, revealing the shape of the public finances and Treasury’s best guess at what the economy will look like in the uncertain future.
Vera Alves
Chris Hipkins is in Christchurch today and has met with Pharmacy Guild President Des Bailey and local pharmacists to hear about the positive impact of removing prescription charges for patients.
Photos / George Heard
Chris Luxon and Chris Bishop pack corn chips at Taita factory
Vera Alves
Luxon rounded off his campaigning north of Wellington with a visit to the Kiwi chip company Mexicano at its factory in Taita.
With plenty of jokes about his level of need for a hairnet, Luxon was taken along the production line and was given an opportunity to pack a box.
Photo / Mark Mitchell
He struggled earlier but finished the job well.
His campaign chair and Hutt South candidate Chris Bishop then had a turn, starting with a hiss and a roar but having forgotten to shut the bottom of the box, all the chip bags he’d packed spilled out.
“This is why I’m in politics, not packing,” Bishop conceded.
Luxon confirmed he still had confidence in Bishop, also National’s campaign chair, despite his poor packing skills.
‘Confidence-only’: An Act bluff or a real prospect of a policy-by-policy minority government?
Vera Alves
There’s a lot that National and Act agree on, such as the law and order space, but there are also substantial differences when it comes to government spending and tax.
Derek Cheng looks into what's at stake and whether New Zealand could end up with a minority government.
Who’s running the campaigns and what have they got to spend?
Vera Alves
After the first week of the election campaign, Audrey Young looks at some of the campaigns, who is running them, what their war chests look like and what makes a good one.
Vera Alves
Vera Alves
Vera Alves
Upon leaving the Petone cafe, Luxon stopped to speak to a family of four, during which he encouraged a young boy with red hair to attend the Redhead Days Festival, held in the Netherlands.
“It’s like Woodstock for red heads,” Luxon said.
Luxon’s two children, William and Olivia, have red hair but at National’s campaign launch recently, the pair clarified they didn’t inherit their ginger genes from their father, noting their now bald dad used to be blonde.
Vera Alves
Disappointingly, Luxon barely had half of his hot chocolate.
It’s the second day in a row Luxon has made an appearance at a food establishment and not finished his kai.
Yesterday, he visited Rays Pies and Fries in Paraparaumu and out of 21 flavours, chose a mince pie, which he took a bite out of in front of media.
Subsequent investigations by the Herald revealed he only took a couple of bites before handing it off to a National Party supporter during a sign waving event.
The supporter confirmed to the Herald that he had indeed been given Luxon’s mince pie and that it was “very good”, giving it a rating of 8.5 out of 10.
Vera Alves
Luxon has arrived at the Neighbourhood Community Cafe to try the Lux Hot Chocolate. The drink was not named after the National leader but as a known fan of a hot chocolate, Luxon was obliged to try it.
The cafe, who’s profits go towards feeding those in need, came third in a local competition for its hot chocolate, which was cooked for about four hours in a slow cooker and featured cream, chocolate chips, caramel and marshmallows.
“It must be like a thousand calories,” Luxon exclaimed.
Vera Alves
Following his claims of fiscal mismanagement against the Government, Williams was forced to change one of the clock’s numbers because it was more than $70 million out from the right number due to an incorrectly placed decimal point.
Vera Alves
Chris Luxon having a Lux hot chocolate with Chris Bishop at the Neighbourhood Community Cafe in Lower Hutt. Photo / Mark Mitchell
Chris Hipkins says Labour has a 'very stable relationship with the Greens'
Vera Alves
Prime Minister Chris Hipkins told the AM show that Labour had a very stable relationship with the Greens and they can work with them again.
“And don’t forget that the Maori party worked with National in the past.”
Hipkins said that Rawiri Waititi is a colourful character, almost as colourful as David Seymour.
"I would encourage everybody to read the PREFU before casting judgement like everyone in the media already has.
"The government has been working hard to get the books back in order.
“We have been readying the economy to make sure it can get the cost of living crisis under control.”
When asked whether he should have made government cuts earlier, Hipkins said he had already outlined cuts to government spending.
“I have been ensuring that cuts have been in the back office not the frontline.”
Hipkins said that, before Jacinda Ardern resigned, they came to a collective decision as a cabinet as to when the election would be.
Vera Alves
Luxon, who Williams interviewed on the roadside, said he wasn’t aware Williams was coming. He also said it was a public place and the Taxpayers Union could do as it’s pleased.
Asked why Williams said National was a bit ratty, Luxon couldn’t answer.
Asked whether he was happy Williams had crashed his signwaving event, Luxon said he wanted to return to signwaving.
Photo / Mark Mitchell
Taxpayers Union crashes National's sign waving event
Vera Alves
Luxon talking with Taxpayers Union Jordan Williams in Petone. Photo / Mark Mitchell
The Taxpayers Union has crashed National's sign waving event in Petone and tense conversations between the pair have occurred, with National “a bit ratty” at its arrival.
About 30 National supporters have joined Christopher Luxon and Chris Bishop to wave signs to morning commuters.
Photo / Mark Mitchell
About 7.30, representatives of the Taxpayers Union arrived towing an electronic “New Zealand Government Debt Clock”.
Visibly tense conversations occurred between the union’s Jordan Williams and a National staffer.
Williams later admitted to journalists that National was “a bit ratty” that they had turned up unannounced.
However Williams said it was a public place and the Taxpayers Union would be looking to attend a variety of political events.
Mike Hosking questions Chris Hipkins popularity among voters
Vera Alves
Hipkins said the party as a whole was not connecting to the New Zealand public and he needed to get out there and campaign hard. Hosking interjected and said he wanted to know why Hipkins wasn't connecting.
Hosking said: "Something has happened with you - 36 down to 22 percent - something has happened with you - they don't like you anymore - what has happened?"
Hipkins again said it had been a tough couple of years, Covid response, global economic downturn, floods and cyclone. "It has been a tough couple of years...I acknowledge people are feeling that and we have answers for that and that's what we will be campaigning on."
Chris Hipkins on rising food prices
Vera Alves
"We need to see more competition in our grocery sector," Hipkins says, in response to food prices going up in New Zealand, while they are trending down worldwide.
'As a Kiwi bloke, small talk might not be my favourite topic' - Chris Hipkins
Vera Alves
Regarding today’s PREFU announcement, Hipkins told Breakfast the country was in a tough part of the economic cycle.
"Government revenue has gone down and we’ve had to adjust the government’s finances in our government spending plans in order to accommodate that.
“We announced $4 billion of savings a few weeks back because that was what our estimate was of what it was going to take to get the books back into surplus.Labour had “absolutely committed” balancing the books, Hipkins said - claiming National’s plans would instead put New Zealand “in deficit for decades because they’re got no way of paying for the promises they are making”.
Asked about a perception that he did not appear to enjoy campaigning, Hipkins said it was “not a circus, it is an election campaign where we're talking about ideas".
"You know, as a Kiwi bloke, small talk might not be my favourite topic but the reality is I don't think New Zealanders see this as a circus."
'There's a mood for change' - Chris Hipkins
Vera Alves
There's a mood for change, Hipkins said, adding that Labour is offering change too.
He says the Covid-19 pandemic, the flooding and the global economic downturn have put a lot of pressure on New Zealanders.
'Polls not where we need them to be' - Chris Hipkins
Vera Alves
"The polls are not where we need them to be. I accept responsibility for that," Hipkins said.
"I recognise that the party as a whole is not connecting with the New Zealand public," he added.
He says it has been a difficult time for New Zealand but there is "reason for optimism".
Vera Alves
Most economists are picking that economic growth is returning, Chris Hipkins told Mike Hosking, ahead of the Pre-election Economic and Fiscal Update (PREFU) release later today.
Chris Hipkins reacts to Labour's bad news in latest poll result
Vera Alves
Labour leader Chris Hipkins says it’s still a “tight race” between the centre left and centre right bloc and the election is not in the bag for anybody yet.
Hipkins told TVNZ’s Breakfast that as leader it was his job to turn the party’s fortunes around.
It had been a difficult term of government for Labour and he accepted there was a mood for change but said Labour was offering some change.
“The circumstances the country faces are different now to the way they were three years ago… the policies that we’re putting forward are quite different.”
He suggested the polls might reflect that people didn't yet know about some of Labour's policies such as free dental care for under 30s or GST off fruit and veges.
Asked if he would step aside if the polls were low enough, Hipkins said he did not have a plan B.
“There isn’t really an alternative to that in the electoral cycle.”
Vera Alves
Andersen says that the only policy National has to bring down crime are bootcamps and they don't work.
Vera Alves
"You need to make sure the kids are actually at school," Goldsmith says, pointing to that as youth crime driver.
Vera Alves
There will always be a need for prisons in New Zealand, Andersen says.
Vera Alves
Andersen says National talks a big game but does not back it up with funding.
Vera Alves
Goldsmith National will bring back three strikes for the most serious repeat offenders.
Vera Alves
More people are reporting family violence, New Zealand Minister of Police Ginny Andersen says.
Vera Alves
Numbers show youth crime is trending down.
Goldsmith hints that it could be due to police having fewer checkpoints for drug offences.
Andersen says "what we have seen is a small group of people doing more crime" which is why "breaking the cycle of re-offending is important".
She says National's only solution to the problem are bootcamps and "we know they don't work".
Vera Alves
Paul Goldsmith says he hopes ram raids are trending down but sees no evidence of that. "It's a reflection of the situation that the law and order in this country is out of control".
He says the government is soft on crime.
Labour's Ginny Andersen and National's Paul Goldsmith discuss crime
Vera Alves
New Zealand Minister of Police Ginny Andersen and National Party spokesperson for justice, and workplace relations and safety Paul Goldsmith are on AM discussing crime numbers in NZ.
Todd McClay makes emergency housing election promises, Labour says policy a ‘bad rehash’
Vera Alves
Rotorua MP Todd McClay has promised a National government would aim to rid Rotorua of emergency housing motels in two years and make out-of-towners ineligible for emergency housing.
PREFU out today
Vera Alves
The Pre-Election Fiscal Update (PREFU), with some key economic indicators ahead of the election.
Chris Hipkins joins Mike Hosking this morning
Vera Alves
In just under an hour, Prime Minister Chris Hipkins will join Mike Hosking on Newstalk ZB where they will discuss the latest campaign and the results of last night's poll.
Vera Alves
Kia ora, New Zealand, welcome to another day of the election campaign.
Stay tuned as we bring you live updates as the candidates spend another day on the campaign trail across New Zealand.
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.
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.
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 Herald under 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.