Latest / Best of Business / Brad Olsen: Infometrics Principal Economist on the Government books revealing a slower-than-expected path for economic growth

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Brad Olsen: Infometrics Principal Economist on the Government books revealing a slower-than-expected path for economic growth · Best of Business

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  Speaker 1: You're listening to a podcast from newstalk ZEDB. Follow this
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  Speaker 2: Finance Minister Nichola Willis certainly isn't sugarcoating our financial situation.
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  Speaker 2: She says, it is dire. Debt is up, the tax
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  Speaker 2: takers down. Brad Olsen is the Infametric's principal economies with
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  Speaker 2: us tonight, Brad, good evening, Good evening. Let's start with
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  Speaker 2: the couple of numbers jump out at me. Firstly, forty
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  Speaker 2: seven percent of GDP. That's government debt to GDP forty
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  Speaker 2: seven percent. It will peak at is that have we been?
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  Speaker 2: I mean, I'm sure we have been higher, but certainly
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  Speaker 2: not in the last week, while before COVID we were
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  Speaker 2: about twenty Yeah.
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  Speaker 3: Look, I mean that debt figure is ugly, and I
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  Speaker 3: think it highlights that over time we've built up that
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  Speaker 3: level of debt time and time again to get through
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  Speaker 3: some pretty challenging economic times. Recently, of course, the pandemic
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  Speaker 3: was still a pretty big hit in the government did
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  Speaker 3: need to respond to it. The challenge, of course, is
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  Speaker 3: that having racked up so much debt to do that,
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  Speaker 3: at some point the bill comes for repayment, and we're
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  Speaker 3: still continuing to see the government spend more than it's
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  Speaker 3: earning for the next couple of years, which means that
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  Speaker 3: we're not actually even starting to pay it down. We're
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  Speaker 3: just sort of adding more and more on. So the
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  Speaker 3: fiscals have gotten a bit out of kilter given the
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  Speaker 3: fact that that debt's higher. But that's also coming about
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  Speaker 3: because government revenue is expected to be thirteen billion dollars
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  Speaker 3: less over the four cast period than expected at budget,
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  Speaker 3: but the government will be spending nearly six billion dollars
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  Speaker 3: more than they thought at budget time. That wider gap
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  Speaker 3: with more spending less money coming in, that's a very
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  Speaker 3: difficult place to get yourself out of.
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  Speaker 2: And that's why we're going to borrow borbone. Is there
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  Speaker 2: a number where because we're a small trading nation, I
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  Speaker 2: know there are lots of countries around the world with
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  Speaker 2: far worse ratios than that, But is there a number
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  Speaker 2: at which you start to go alarm bells ring?
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  Speaker 3: I mean, certainly Treasury has highlighted before that somewhere between.
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  Speaker 3: Once you get up to sort of over fifty, you
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  Speaker 3: really start to get quite worried, just because if there
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  Speaker 3: is another shock of any sort, you know, be it
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  Speaker 3: something that hits our primary and export markets. If you
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  Speaker 3: have another natural disaster and other pandemic, New Zealand needs
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  Speaker 3: the ability to respond and we know that in those
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  Speaker 3: tough times we often can't rely on our own self
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  Speaker 3: sufficiency quite as much. Now you look at other bigger economies,
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  Speaker 3: they just have a little bit more sort of natural heft.
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  Speaker 3: They can trade amongst themselves locally a lot more. We
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  Speaker 3: can't quite as much in New Zealand. We're a lot
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  Speaker 3: more dictated by how global economic growth goes and how
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  Speaker 3: our exports and production go. So if those get hit,
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  Speaker 3: we do need a little bit more buffer room to
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  Speaker 3: get ourselves out of the pickle that we might find
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  Speaker 3: ourselves in. That's where that deck capacity becomes so important.
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  Speaker 3: And again we know that we've got a lot of
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  Speaker 3: infrastructure we need to invest in and that's important. But
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  Speaker 3: with the fact that government is still going to be
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  Speaker 3: spending more than it's earning over quite a long period
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  Speaker 3: of time, we're still borrowing for just the day to
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  Speaker 3: day costs and that is quite challenging and it means
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  Speaker 3: we're still half a decade away from seeing the books
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  Speaker 3: back in surplus that's a long time to wait.
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  Speaker 2: Is tell me what, as you all read on the
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  Speaker 2: OBI gal X, is it justified that we are taking
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  Speaker 2: the acc deficit basically off the books?
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  Speaker 3: I mean, I think it's very convenient timing, of course,
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  Speaker 3: to come out with the change at the moment. To
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  Speaker 3: be fair, even with the change, the effective surplus has
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  Speaker 3: been pushed out nearly two years, so again it's sort
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  Speaker 3: of quite a big shift there. Realistically, I think there
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  Speaker 3: is some merit into what the government has done with
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  Speaker 3: that figure, but I don't think it helps that there's
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  Speaker 3: all these different numbers that we now cast about on
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  Speaker 3: so maybe useful, but to be fair, I think we're
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  Speaker 3: all trying to get our heads around it. Having had
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  Speaker 3: it dropped on us, you know, a couple of hours ago.
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  Speaker 3: It still will take us some time to read through it.
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  Speaker 3: But definitely a change that I think we're all going
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  Speaker 3: to have to get our heads around.
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  Speaker 2: Were you surprised to see the Finance Minister basically stick
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  Speaker 2: to her guns that the books have changed quite drastically,
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  Speaker 2: deteriorated quite drastically between the budget and now her fiscal
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  Speaker 2: position is basically the same.
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  Speaker 3: I was a little bit surprised that the government isn't
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  Speaker 3: looking to, in fact almost go steeper and deeper when
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  Speaker 3: it comes to making some pretty tough choices around spending.
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  Speaker 3: The Finance Minister, of course confirmed those two point four
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  Speaker 3: billion dollar operating allowances. But I think that also highlights
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  Speaker 3: the current economic reality for the government, which is that
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  Speaker 3: we've made such big commitments on government spending the last
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  Speaker 3: couple of years. It's very easy to do those and
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  Speaker 3: to commit them at the time, very hard to unwind
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  Speaker 3: them back. And so you know, some people are saying, well, geez,
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  Speaker 3: we feel like we're in austerity politics. I mean, really,
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  Speaker 3: at two point four billion each and every year, we're
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  Speaker 3: clearly not. But even then, even with what are some
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  Speaker 3: of the smallest budget allowances in a reasonable amount of time,
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  Speaker 3: the government is still going to be spending more than
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  Speaker 3: thirty percent of GDP on operating expenses all the way
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  Speaker 3: out to twenty twenty nine. I mean, it highlights that
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  Speaker 3: we're not getting our sort of spending relative to our
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  Speaker 3: income under control particularly quickly. But I think as well,
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  Speaker 3: the minister's probably in between a bit of a rock
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  Speaker 3: and a hard place here. Ryan. If you had you'd
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  Speaker 3: have some people If the minister cuts the allowancers say well,
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  Speaker 3: government's not spending enough on New Zealand, and other people
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  Speaker 3: probably saying the government spending too much. I mean, you
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  Speaker 3: really can't win when you're the Minister of Finance.
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  Speaker 2: No, and she has an election to worry about in
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  Speaker 2: twenty twenty six and the last thing she would want
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  Speaker 2: to do would be to look like Ruth Richardson and
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  Speaker 2: then you know, throw throw a one term government out
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  Speaker 2: the window. Let's look at the GDP twenty twenty five
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  Speaker 2: one point six percent, twenty twenty six three point four percent,
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  Speaker 2: twenty twenty seven two point seven percent. Now, if you
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  Speaker 2: look at per capita, we're actually still going backwards in
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  Speaker 2: twenty twenty five. But why is it that we go
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  Speaker 2: up and then down again, Brad. In twenty twenty six
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  Speaker 2: we're at three point four and then in twenty twenty
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  Speaker 2: seven we go down to two point seven.
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  Speaker 3: I think there's sort of two elements coming through there.
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  Speaker 3: One is a bit of a mathematical bounce back that
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  Speaker 3: as those interest rates come down and you start to
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  Speaker 3: see the economy unlocked, there's a little bit of pent
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  Speaker 3: up demand that likely comes through after some weaker growth
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  Speaker 3: because you didn't have where you had negative levels of
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  Speaker 3: activity this year. You get slightly better next year, but
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  Speaker 3: it's still not amazing. Then the year after once you
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  Speaker 3: really sort of get the economic motor running again. Mathematically,
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  Speaker 3: that looks a touch faster than before. After that, though,
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  Speaker 3: that sort of trend slowdown comes through because we just
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  Speaker 3: don't expect to be getting that same level of productivity
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  Speaker 3: coming forward. And I think that the worry as well
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  Speaker 3: is that when we look at the different components of
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  Speaker 3: the economy, the government clearly isn't going to be stimulating
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  Speaker 3: a huge amount of activity. We're worried about the likes
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  Speaker 3: of global factors, and so we're not quite so sure
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  Speaker 3: that exports are really going to drive things into the future.
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  Speaker 3: We know that productivity hit means that sort of general
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  Speaker 3: business profitability isn't going to be amazing, and so it
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  Speaker 3: won't be contributing huge amounts, which sort of leads households
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  Speaker 3: as the main potential driver of the economy going forward.
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  Speaker 3: That's sort of a difficult proposition when infrastrates are not
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  Speaker 3: going to drop low, they're just going to go back
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  Speaker 3: to sort of normal. So I think that the sort
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  Speaker 3: of growth center for the economy is a little bit
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  Speaker 3: harder to pick at the moment, and again that makes
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  Speaker 3: Treasury's job quite hard because there's a lot of stuff
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  Speaker 3: that everyone wants to spend on, but without stronger economic growth,
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  Speaker 3: you don't get as much tax take and you don't
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  Speaker 3: have the money that you want to spend.
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  Speaker 2: Great points, Brad brad Olsen infor Metrics Principal Economists.
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