There will be four big questions to be addressed in today’s Half Yearly Economic Forecasts Update:
- What will happen to the promised 2017 tax cuts
- Will the Government bring forward some big infrastructure spending
- And would the debt target be relaxed to accommodate that
- Is Mr English going to have more flexible fiscal surplus targets so he can address some growing public spending anomalies?
Treasury will be releasing the update early this afternoon after what has been touted as a substantial review of the last forecast which were prepared in April.
Mr English told POLITIK in October that the Government had had to redo all the forecasts “because a hell of a lot has happened since April.”
From March till August the Global Dairy Trade price for wholemilk powder halved.
It has recovered somewhat since and is currently only 30% below the March figure.
But what is as much concern to Mr English is that because inflation is low, the nominal growth figures are less than were seen after previous recessions and this has the effect of reducing tax revenue.
But so far Mr English has resisted scrapping the $1.5 billion of spending set aside for tax cuts in 2017.
Last Thursday the Governor of the Reserve Ban, Graeme Wheeler, also addressed the low inflation question and suggested the Government could bring forward some infrastructure spending in Auckland to try and stimulate the economy.
That might be difficult though because the Auckland Transport Alignment Project is currently in full swing to try and produce an agreed blueprint for the future of Auckland transport between the Government and the Council and is not due to report till late next year.
It could be possible to accelerate some infrastructure spending related to new housing though.
However every hint coming from Mr English suggests that the debt target will be relaxed slightly.
That also suggests that he will not be aiming for such hard-to-get surpluses.
In part this is because of the uncertainty about revenue but also there is a stack of spending liabilities starting to appear in the Government’s in trays.
The so-called “terra Nova” pay equity case involving rest home workers is currently being negotiated and Mr English has told POLITIK that could have an impact on the Government’s accounts.
But while savings are being made — there are some areas where more spending is going to be required.
Customs recently told a Select Committee they are having staff retention problems at Auckland Airport because of “remuneration issues”.
So today’s document is in some ways more important than the Budget in that it will set the outer parameters of Government fiscal management over the next three years.
POLITIK will have full coverage tomorrow.