Treasury predicts persistent cash deficits

The results of the Pre-Election Economic and Fiscal Update (PREFU) show that Treasury are predicting persistent cash deficits and growing government debt continuing beyond June 2016, calling into question the National Government's fiscal and economic management, Green Party Co-leader Russel Norman said today.

"The PREFU show that the Government continues to run residual cash deficits past the end of the forecast period in June 2016. The PREFU states that these residual cash deficits will be funded by further debt," Dr Norman said.

"The Government will want us to focus on the Crown operating balance which goes positive in the year ending June 2015. But cash deficits will remain, and the increase in Government debt will continue under a National-led Government.

"Moreover, the Inland Revenue Department is $3.5 billion more pessimistic about revenue forecasts over five years than Treasury's rosy predictions, with the result that cash deficits are likely to be even worse.

"The Government's fiscal strategy of tax cuts for the top 10% of income earners is costing the Government $2 billion per year - a very poor quality of spend when facing record borrowing."

It's not just the Government fiscal strategy that looks in trouble; the economic outlook is poor. The PREFU revealed today that the current account deficit and the Net International Investment Position will worsen in the years ahead.

"The underlying structural imbalances in the economy remain, with the result that the current account deficit makes a savage return to 6.9% of GDP in 2016, and the net overseas debt increases," said Dr Norman.

"On fiscal policy, the Government's failure to consider revenue-raising alternatives will now mean increased borrowing, and increased interest rates for all New Zealand businesses and mortgage-holders as a result of the credit downgrade.

"The Green Party's proposal to raise a temporary earthquake levy to help pay for the Christchurch rebuild was a better alternative to funding the rebuild entirely through debt.

"For the longer term, the Green Party's proposal for a comprehensive tax on capital gains (excluding the family home) will greatly assist the rebalancing of the economy onto a more productive footing while providing an additional revenue stream to pay down debt faster.

"If the Government was smart, it would change its current fiscal and economic plan in light of the evidence that it's still not working," Dr Norman said.