Government's coffers are not as heavy as they should be, economists say
With the government expected to deliver a “no frills” budget on Thursday, Kiwibank economists said it must tackle a massive cyclone rebuild, as tax revenues weaken and without new taxes (or cyclone levy), as promised.
In Kiwibank’s latest publication, Jarrod Kerr (pictured above left), chief economist, and Mary Jo Vergara (pictured above right), senior economist, said that “in order to pay for cyclone damage, the government must divert monies from elsewhere and increase debt,” and with the government also wanting to help out with the cost-of-living crisis, “that too, will come at a cost.”
“The government must step in to help clean up and rebuild from atmospheric rivers of rain and a nasty cyclone,” Kerr and Vergara said. “Guesstimates range from $9 to $15 billion and climbing. And the government will be required to fund about half – the rest is insured.”
The bad news was, in the nine months ended March 2023, tax revenue was $2.3bn short of HYEFU (Half Year Economic and Fiscal Update) forecast in December 2022. GST receipts, too, were shy of estimates, with GST revenue $0.8bn below forecast, indicating that the economy is tracking weaker than forecast. And while there was an underspend across “a number of government agencies,” this too, was not good news either, as delays were a big part.
The economists said the “Treasury must incorporate weaker economic activity and government revenues throughout their projections.”
“The RBNZ’s abrasive monetary tightening is working,” they said. “In the HYEFU, a cumulative 0.8% three-quarter contraction was pencilled in. We’d expect to see that rubbed out and a deeper contraction drawn instead. Weaker economic activity means a lower tax take. Although, inflation will help to prop up tax revenue. Nonetheless, the return of the Crown’s operating balance to surplus will likely be pushed out as a consequence.
“Not only are high interest rates constraining the economy, they’re lifting the interest the government must pay on its debt. The weaker economy not only means revenue projections must be cut, but (forecast) higher unemployment will cost the taxpayer. And all of this comes at a time of significant expense.”
Finance Minister Grant Robertson earlier announced $4bn in “savings” and “reshuffling” to reprioritise the government’s spending towards addressing cost-of-living pressures, the continuation of key services, recovery and resilience, and fiscal sustainability.
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