Should the assertions in this Blog be even roughly correct, it looks like Finance Minister has a lot of explaining to do. Where's the evidence? Well, the long term fiscal situation is one my fields in economics - we even flew out the 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 2% 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.
Click to view
In the graph above, by 2024 the budget was forecast to come back into balance - by over $1 billion surplus in 2025. But that never happened. Since the 2021 forecasts were published, NZ's fiscal situation deteriorated markedly. Fiscal expenses now way, way exceed revenues - we're mired in huge deficits. National has also cut government tax revenues by adjusting tax brackets for inflation & reducing taxes on landlords. Yet magically, Willis presented the graph below, with her name on it, a few months ago in her Budget 2024:
Click to view
Take a look at her projection to 2035. It shows core crown revenues hugely exceeding core crown expenses by 2035, by a whopping 2% of GDP. That roughly corresponds to $8 billion per annum. In other words, the Finance Minister has reported a gigantic $16 billion per annum reversal ($8 billion - (-$8 billion)) in her Budget from the Treasury's official forecasts in the space a few years - during which time NZ's fiscal outlook has hugely declined as interest rates soared, taxes were cut, and future rates of how fast the economy will grow have been dramatically revised down. Sure, the first graph measures "Core Crown primary revenues & expenses", whereas the second one is "Core Crown revenues & expenses" but that difference isn't capable of explaining the discrepancy. Did Willis make her forecasts up?
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
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