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The Crown accounts won't return to surplus until 2027 and debt will rise, after the Government increased spending during an economic boom, ANZ says

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The Crown accounts won't return to surplus until 2027 and debt will rise, after the Government increased spending during an economic boom, ANZ says
Man at an ANZ ATM machine

ANZ economists think Treasury’s pre-election update will suggest an extra $10 billion of Government borrowing as the economic agency corrects its Budget 2023 forecast.

Miles Workman, an economist at ANZ, said new forecasts would show the Government’s fiscal position was much weaker than had been forecast in May.

“Treasury’s economic and tax forecasts are due a downgrade and we suspect that will push the forecast return to operating balance before gains and losses (OBEGAL) surplus out by another year to 2026/27,” Workman said. 

Financial statements for the 11 months ended May showed tax revenue was running more than $2 billion below forecast. This doesn’t seem to be temporary and it will need to be baked into pre-election forecasts

Workman said the Treasury may need to issue an average of $2.5 billion of bonds in each of the next four years, relative to Budget 2023 projections. That’s an extra $10 billion of borrowing taking the total forecast government bond issuance to $130 billion between 2024 and 2027.

That number might have been higher had Finance Minister Grant Robertson not found $4 billion of cost savings across that same period. 

“That’s about $1b per year, so not a huge relief when it comes to pressure on Consumer Price Index inflation and interest rates, but every little bit helps,” Workman said. 

Budget 2023 increased government spending—operating and capital—by a little over $5 billion in the first fiscal year, or 2023/24. 

Workman said the Government had been in a pattern of spending, rather than saving, positive tax revenue surprises which had left it with limited fiscal headroom.

Now that tax forecasts are being revised downwards amid slow economic growth, the Government is having to pull back on spending to stay within its fiscal rules. 

“Spending positive cyclical revenue surprises and then cutting spending plans when revenue forecasts deteriorate suggests fiscal policy is moving with the business cycle, opposed to being counter-cyclical,” Workman said. 

Push & pull

That can result in fiscal policy working against monetary policy. The International Monetary Fund recently encouraged New Zealand to improve the interaction between these two forces.

Orthodox economic theory suggests that fiscal policy should be counter-cyclical, meaning that it spends when the economy is weak and saves when it is strong.

This helps to smooth out the business cycles and helps support households through periods of high unemployment. But fiscal policy has fallen out of sync during the pandemic, and NZ has increased its spending while the economy was already running too hot.

Workman said the big spending programme in 2020 was well justified, as many expected the pandemic to be the worst economic crisis in a generation

However, that turned out to be incorrect and by the end of 2021 it was “unambiguously clear” that the economy was running at capacity. 

Despite economists saying the economy could not absorb more fiscal support after Budget 2021, the Government delivered two more big budgets in 2022 and 2023.

While Labour has planned a decline in spending over the next four years, future governments have the ability to change that plan in each annual budget. 

Currently, Workman and other economists expect the first operating surplus to be in the 2026/27 fiscal year, which would mean seven consecutive deficits in a row. 

“If we’re right about that, that would be one more year in deficit than what followed either the Global Financial Crisis or the Canterbury earthquakes, despite these events being very different in terms of their macroeconomic impacts and the consequent appropriateness of persistent fiscal stimulus”.

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And between now and 2026/27, how many cyclones (or pick your poison) will have rolled through?


Too optimistic. 
Tax revenue will tank and won’t recover sufficiently till 2027 at the earliest.

Especially with National’s tax plan in the mix.


Why even publish this stuff? Every week the 'economists' swing a chicken and sacrifice a hare to inspect its liver, I don't think they ever pan out.

The banks put this stuff out there as credentialed fluff for the newspapers to repeat to the plebs, as if the credit creation process is a factor of their confidence to demand (it isn't) rather than banks willingness to lend.


Thank you for the comment.

The question is: Why did Dan repeat what they said, unchallenged? 

He's been given enough info, to do better.


I think this is the same economist who says that NZ mortgages are 'funded' by domestic depostis. 


Jeez, there's some bad analysis from the 'experts' here. Where do we start...

Most importantly, the idea that a country like NZ that runs persistent trade deficits should 'return to surplus' makes no sense at all. If NZ Govt deficit spending doesn't exceed our trade (current account) deficit (about 8% of GDP) in any given year, then increases in private debt have to make up the difference. This works when we have housing booms and private debt is rocketing upwards - as it did when we ran our surpluses in the mid-2000s and in the late-2010s. However, do we really want to rely on inflating our ridiculously high private debt so that we can run a 'surplus'? Who are we trying to please here? Dozens of big countries with trade deficits stopped running surpluses 15 - 20 years ago.

Secondly, Govt deficit spending is currently running at around 5% of GDP (less than trade deficit and way less than other countries) and net private borrowing has completely stalled. So, stimulus is firmly negative, which is why we are in a deepening recession. If Govt don't start spending quite a bit more than they tax, we are going to get into a recession doom loop.

Thirdly, the 2021 spending boom was absolutely needed to sustain jobs, businesses, health staffing etc. The problem was that loose monetary policy and some daft RBNZ gimmicks (QE, FLP etc) came in on top of the necessary fiscal stimulus and juiced the housing market and the economy. Any basic analysis of stimulus over the COVID era shows this unnecessary doubling up really clearly.


Yes.. Given the level of private debt we have, govt need to run  deficits and make sure economy catches up to 'affordably' pay the record household debt. 

I don't understand why National govt saying 'foreign borrowing' to fund infrastructure projects in NZ . Such a crazy idea - but I guess their intention is to keep people confused and to highlight current government's spending mismanagement.



The problem was that loose monetary policy and some daft RBNZ gimmicks (QE, FLP etc) came in on top of the necessary fiscal stimulus and juiced the housing market and the economy.

I have no clue what impact QE,FLP etc had on housing market. May be helped to long end pull the interest rates down ?

But Mr.Orr said FLP/QE created more 'room' for the government to run further deficits. Not sure how impactful that is 

One thing is sure . Through FLP , RBNZ converted low yielding bonds to high OCR ( 5.5% ) yielding settlement balances ( aka reserves)

He who has ears to hear, let him hear !!


Yes, QE, FLP etc kept market interest rates down across the terms (1 year - 10 year etc)- making larger mortgages more affordable, and, with competition for properties, we got a housing and borrowing boom. Of course, every chain of house sales involves someone cashing out, so that glut of newly created borrowed money found its way into the economy too and, with Govt deficit spending, we finally saw something approaching full employment..

Mr Orr is talking out of his proverbial of course... As you note, QE shifted debt fixed at around 2.5% to floating rate debt at OCR - meaning the Govt is now shovelling $8m per day to the banks in interest on settlement reserves (about $5.5M net as FLP interest is coming the other way).


And the important question is were the banks ever in need of more settlement money? I mean how will that help them in boosting activity ?

RBNZ should be clear , they have done FLP to lower interest rate - not to 'boost' economy by giving banks more money


If it's a Lab/Nat or coalition with them in it I doubt we will see a budget surplus next term.


Disaster. Utter and complete dereliction of the prudential responsibilities of office. 


Debt devaluation is quite literally their only hope now 


The International Monetary Fund, in its latest Regional Outlook, predicts that next year the NZ economy will have the second-lowest growth of the 159 nations it surveys, ie 0.8% growth.

After 6 years of Labour, what is our excuse? We cannot say Covid: that was a pandemic, something that is worldwide. 

‘Does anyone believe that, under National, our economic performance will be so bad?

NZ has 52,404 more people on Jobseeker benefits than in 2017 because the Government is not enforcing the requirement that able-bodied adults must accept suitable job offers.

Thanks to Richard Prebble who highlighted this information in today’s NZ Herald.



Yes, me. I believe it will be just as bad, if not worse.