Treasury likely to downgrade economic forecast while Chris Bishop says the government won’t be ‘a slave to a surplus’, writes Anna Rawhiti-Connell in this extract from The Bulletin.

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Recession will be deeper and last longer — Treasury

At a recent Spinoff Live event in Wellington reviewing the year, I said it had been a good year for torturing metaphors involving dawn and darkness. Finance minister Nicola Willis said it was “darkest before the dawn” in her pre-Budget speech on May 9. Since then, inflation has fallen (a feat claimed by the government), there have been cuts to the Official Cash Rate, with another expected next week, and home loan interest rates have dropped. Clouding over these chinks of light is Treasury’s expectation that its economic and fiscal forecasts relative to the 2024 Budget will be downgraded. Yesterday, its chief economic advisor, Dominick Stephens, delivered a speech saying the latest evidence suggested the recession would be deeper and last longer than predicted in May.

Government will not be a ‘slave to a surplus’

For political economy nerds, December 17 has been aggressively circled in the calendar. That’s when Treasury will provide its half-year update known as the Half Year Economic and Fiscal Update (HYEFU). Willis will also preview Budget 2025 in her Budget Policy Statement (BPS). The HYEFU, undoubtedly deserved of a spot on a list of the best governmental acronyms, and the BPS are two of the last big political setpieces of the calendar year.

As the Herald’s Jenée Tibshraeny writes (paywalled), associate finance minister Chris Bishop is tempering expectations of a return to surplus by 2027/2028, as forecast by treasury when the Budget was delivered in May, a year later than National promised before the election last year. Commenting on Stephen’s speech yesterday, Bishop said the government will not be a “slave to a surplus”.

Economists call for halt on spending cuts

As interest.co.nz’s Dan Brunskill reports, a group of economists have written to the finance minister asking her to rethink plans to aggressively rein in government spending, which they believe is worsening the recession.  The letter was written by former Productivity Commissioner Ganesh Nana and co-signed by 14 others. As Brunskill notes, many, like Council of Trade Unions economist Craig Renney are known left-leaning thinkers, but the group says it’s not partisan.

Split opinions of government’s delivery on promise to fix economy

In an opinion published by the Herald yesterday (paywalled), Robert MacCulloch, who is not a signatory to the letter, and holds the Matthew S. Abel Chair of Macroeconomics at Auckland University, wrote that Willis has not yet proved herself as finance minister and that she is “missing in action when it comes to breaking local monopoly powers, which are the main cause of our high cost of living”.

That’s in stark contrast to the assessment given by business leaders for the Herald’s “Mood of the Boardroom” in October (paywalled), where “a significant majority of executives” expressed trust in her management of the economy as finance minister. Optimism about the New Zealand economy among the group also surged to its highest level since 2016.

When Mood of the Boardroom was published, Matthew Hooton wrote that Willis should be leading the National party and Labour’s finance spokesperson, Barbara Edmonds, her party. In an opinion piece published by the Herald this morning (paywalled), Hooton reserves his sharpest criticism about the country’s current economic woes for prime minister Christopher Luxon. “Bereft of a deep understanding of the New Zealand economy and its recent development, Luxon had nothing to offer but some modest yet unaffordable tax cuts and a belief his mere election might motivate an economic boom,” he writes.