Bernard Hickey on the Prefu numbers announced today – and the case for a ‘video assistant referee in the political game’.
The finance minister, Nicola Willis, today hailed the “healthy economic growth and a distinct improvement in the government’s books” as the pre-election fiscal update landed ahead of the final sprint in the 2026 campaign.
Since the budget in May, forecasts have brightened, meaning the deficit in the year to July 2026 saw a deficit $3.4bn lower than forecast. The year to July 2027 is now projected to see a $6.8bn deficit, down from the previously forecast $11.4bn.
The unfortunate irony, however, cautioned Bernard Hickey, on a new episode of At Large with Toby Manhire, was that much of this came as a result of inflation, which has tipped many people into a higher tax bracket.
“It may not feel like it because prices have gone up more than wages,” said Hickey, who writes the Kākā newsletter, “but because people’s nominal wages have gone up, they’ve gone into the next tax rate category. They’ve gone over the threshold, and ‘fiscal drag’ has dragged them to having to pay more taxes.” The inadvertent motor here was “inflation, the demon of everyone, including the government and voters”.
Speaking on Newstalk ZB this week, Christopher Luxon trumpeted a focus in the years to come on reducing deficits and moving into surplus. “Not many countries have got the balls to get their books back in order. And this is what we have been doing differently from everybody else,” he told Mike Hosking. “We are zigging while the rest of the world is zagging.”
Hickey took issue with the fiscal conservatism.
“There are choices being made here to repay debt early, to zig while others are zagging, to have ‘the balls’ to get our books in order. But it also means having the balls to not build houses for people to live in, having the balls to make sure that people are being treated in emergency department hallways. That’s what that means when he says having the balls to cut spending and cut spending growth.”
The Prefu and fiscal holes
After taking office in 1990 and immediately getting a fright, the Bolger-Richardson government instituted the pre-election setpiece, and the Prefu has landed ahead of every election since 1993.
“It’s the once-every-three-years presentation of the books to the politicians before they make their promises,” said Hickey. “The idea was that you have all the information, and everyone has a level playing field… and, in theory, voters can look at the promises versus the baseline of the books, and then there’s no complaints afterwards.”
Not that it will stop the fiscal squabbling, mind you. There was “absolutely” a case for introducing an independent policy costing office ahead of elections, said Hickey.
“There’s a risk we’re going to have a 2017 style budget black hole,” he said, nodding to the “$11.7 billion fiscal hole” that Steven Joyce alleged as Bill English and Jacinda Ardern were preparing for their first big debate. “That was a doozy, and forced very unqualified and under-resourced people like me and Vernon Small and Pattrick Smellie to effectively become the arbiters of whether it is a hole or not. Now we should still do that work, but it would be quite nice to have some professional Treasury types who have the time and the spreadsheets to do a proper analysis of these claims.”
Adding such an office, in line with examples in the US and the UK, would help the public consider the arguments. “Experts who understand how these things work can be the referee,” said Hickey, “or the video assistant referee in the political game”.
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