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Treasury's economic outlook improves markedly from a few months ago; Expects it'll issue $20 billion less debt over four years

Treasury's economic outlook improves markedly from a few months ago; Expects it'll issue $20 billion less debt over four years
Grant Robertson. Getty Images.

Treasury’s economic outlook is continuing to improve, as the impact of Covid-19 is expected to be less severe than previously thought.

The Government isn’t expected to issue as much debt; a situation that may constrain the Reserve Bank’s (RBNZ) Large-Scale Asset Purchase (LSAP) programme.

Treasury sees the Government’s tax take increasing and expenses decreasing more than it did earlier in the year to the point it now sees its books getting back in the black by the 2025 financial year.

Treasury forecast, in its Half Year Economic and Fiscal Update (HYEFU) released on Wednesday, a small surplus of $674 million by 2025.

It forecast a deficit of $21.6 billion in 2021, which is $10.1 billion smaller than expected at its Pre-Election Fiscal and Economic Update (PREFU) released on September 16.

From 2022 onwards, Treasury saw deficits shrinking by several billions more than it did in September.

It believed the lockdowns didn’t hurt the economy as much as previously thought, improving forecasts around economic activity and consequently the labour market and tax take.

On the other side of the ledger, a stronger than expected economy means fewer welfare payments.

However, Treasury noted the pain of the crisis is being disproportionately felt by women, Maori and Pacific people and young people. Meanwhile it expected house price inflation to remain “robust”.

The relative strength of the economy - from a dire starting point earlier in the year - hasn’t come for free.

The Government earlier in the year set aside $62.1 billion for the Covid-19 recovery. Of this, $10.3 billion remains unallocated, and is expected to be used in the event of another outbreak.

Much of this funding has gone towards the wage subsidy. Treasury couldn’t detail how much of what has been allocated has gone out the door.

Coming back to the Government’s debt track, Treasury cut its forecast New Zealand Government Bond issuance programme by $5 billion to $45 billion for the year to June 2021. It also slashed its forecast by $5 billion in each of the following three years.

In May, Treasury expected it would issue $60 billion of New Zealand Government Bonds in the 2021 financial year. While it no longer believes the Government needs as much, $45 billion is still well above the $10 billion that was forecast this time a year ago.

The RBNZ has committed to buying up to $100 billion of New Zealand Government Bonds on the secondary market by June 2022 as a part of its LSAP programme. It has already bought just over $40 billion. Under an indemnity provided to it by the Finance Minister, it can’t buy more than 60% of New Zealand Government Bonds on issue.

Treasury said it was “working closely” with the RBNZ as the central bank plans operations under its LSAP.

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Good news certainly will support our dollar !


".. the impact of Covid-19 isn’t expected to be as severe as previously thought."
This outcome was very much expected by rational kiwis... think about the death rate predictions, 80000 deaths what a massive joke.


Yes, 80,000 deaths if we'd done *nothing at all* was quite possible.

Thankfully we did do something, as did every other country in the world. That's the point of a "warning" - so you can take action before the bad thing happens in hopes that you will prevent or ameliorate the bad thing that you've warned about.

Sweden did very little to lock down their population and their population is twice that of NZ. Their death rate is nothing like 160k

It's not over yet.

Those figures I understand is over a 2 year period. Expectations of a 2nd wave.
They had UK at 250k dead.
UK current death rate is higher than Sweden's.

I didn't say anything about "lock down", I said "we did something", as did Sweden.

But even without strict regulations, there is evidence that many Swedes are socially distancing. Google mobility data shows that the number of people using public transport has fallen by 43 per cent since the pandemic began, a similar decline to the UK. While reports of people with desk jobs being forced to go into the office abound, home-working has become the norm for many.

Furthermore, at the time those predictions were made, we didn't know if a vaccine was going to be possible, or how long it would take. As it turns out, we're in one of the best possible universes for vaccine development timeline and efficacy.

Agree your comment is quite a joke

Yes, the world certainly got lucky with the death rate being lower than first thought. Best information early on was ~1-2% death rates, and certainly with new treatments we're now well below that thankfully, probably by an order of magnitude.

Would have been a hell of a gamble to bank on that early on, though. Even as the disease turned out, if we were on a par with countries like the UK/US we'd be looking at 5k deaths in NZ by now, to say nothing of the sickness and long term impacts. We're extremely lucky to have kept it out as well as we have.


As border restrictions start to be partially eased from 1 July 2021 onwards, net migration flows rise to 43,000 by the end of the forecast period. Rising net migration increases population growth, stimulates demand and increases the potential size of the labour force.

Anyone else feeling optimistic?

Let's do this!


Yeah let's. And let's be so transformational.
Yeah, right.
Phoney PM, phoney government.

There it is.


Seriously?! This is the transformational government we were promised?


That compounds my decision to leave. Thanks Labour, I'll leave with no regrets now.

Haha, well given Treasury's track record...
A parrot would have as much chance as being right

It might object to having its entrails read, but. (insert Dead Parrot Python references here...)


Here in plain sight is a Govt that owes a large chunk of its ‘debt’ to the bank it owns. Literally paying interest to itself, whilst talking seriously and gravely about the need to ‘balance the books’!!!

Our insistence to balance the books and not borrow from ourselves is stronger than the drive to plug our infrastructure deficit so our skilled workers don't leave the country in search of better economic opportunities and affordable living.

It is crazy - we have 350,000 people under-utilised, crumbling infrastructure, and a desperate need to create more sustainable, good quality housing. So, the plan is to withdraw Govt stimulus and stall the economy so that Labour can prove that they can 'balance the books'? It is Seymour-level stupidity.

It is crazy - we have 350,000 people under-utilised, crumbling infrastructure, and a desperate need to create more sustainable, good quality housing. So, the plan is to withdraw Govt stimulus and stall the economy so that Labour can prove that they can 'balance the books'? It is Seymour-level stupidity.

Nice one Jfoe.

While I agree with the sentiment of your comment - we need to have a mature discussion about borrowing, the LSAP programme is not reducing government debt, the money is owed to banks

Explain how (a) govt swapping bank reserves for treasury bonds leads to govt owing additional money to the banks; and, (b) how Bank of NZ (owned by Govt) buying Treasury bonds (sold by Govt) increases debt in any way at all?

Credit where credit is due. Government takes it on the chin if it goes belly up, so well done Grant.

The Government have basically been passengers in all of this: Apart from
- locking the country down
- closing the borders
- spraying money through wage subsidies then getting upset when it had the desired effect of keeping companies running and people in jobs......


Treasury notes that older home owning white males have disproportionally benefitted from the response at the expense of the others in the team of five million.

Treasury notes that older home owning white males have disproportionally benefitted from the response at the expense of the others in the team of five million

Unless they got divorced. Then they're between a rock and a hard place.

Why are treasury expecting core crown expenses to up by $5 billion next year? Are they expecting another big lockdown / wage subsidy? In fact supposedly 2020 will be a cheap year for the government compared to the next 5. Doesn't seem to make sense...

With a Labour government do you really have to asks this question?

Fiscal spending in 'increasing velocity of money and therefore taxes collected' shocker. It's almost although all those eminent economists who warned against austerity where correct.

Don't worry though, the government will allow it all to be funnelled back into fixed assets like housing which will drag that velocity back down.


Widening inequality. Not just housing. But look at the forecast shortfall in DHB budgets. Our health insurance is right up there in household budget priority with the food bill. Don't get sick people. (Harder to do when you live in a dog box)


Don't worry Hamish, a smile and a cuddle from Jacinda will fix all our ills.


Smiles and cuddles = transformation.

Where do National and ACT stand on raising taxes to increase health budgets?

Older folk have consistently screeched for and voted for tax cuts and now face unaffordable health insurance premiums and lower levels of DHB coverage. They've kicked an own goal.

So guess who now want younger taxpayers to pay for private health insurance for them?

Unbelievable, prolonged levels of self-absorption.

When the government runs a budget deficit it creates a surplus in the private sector which adds to our savings, the government then sells bonds to remove this money from the banks and then holds it in the reserve bank.
The government cannot borrow anything before it has first created it through its own spending, its own spending must come first as it is the source of our currency and as we see with QE this money can be returned at any time.
Economist Prof Bill Mitchell explains here why debt is issued.
Part one.
Part two.

I'm looking at these projections and the techniques used are the same as the WeWork IPO profit forecast. Note carefully when the future starts on the graph.

Yep and we all know how Wework ended...

So the economy is doing very well and the future looks good too. So why the hell are they still planing to pump so much extra cash into it. Surely they have over estimated our need for a stimulus and the asset bubble that this is creating is now our biggest risk. Surely high time to review the situation and significantly button back the stimulus and future debt that we will pass on to the long suffering next generation. Our Government and RB truly are a bunch of idiots.

Definitely time for a review - but need smarter Govt investment not less. So put an end to stoopid quant easing that just drives cash into assets and shares, and start more targeted investment to bring under-utilised resources (mainly people) into productive use.

Government debt is the country's net money supply, if we were to have no government debt then we would have no money apart from bank credit which is our real debt, is that what you want? If you have any savings or money in your pocket then that is all government debt. How can that be a burden on future generations?
The government issues money as its IOU to us when it spends.

Did I hear right on the radio today ? only a 35% house price increase in 5 years ! "Lets pump this" !

Stoked I just settled on another three properties today.

Thanks Jacindy!

Sooo 35% increase in house prices. 5 years?

Great, looks good Jacinda... Sorry to bother you with minor details... But :

Will I be getting a 35% pay increase to do the same job, over the same period?

Or do I need to take on 35% more debt.

Or are we going to lower the base rate each year to reduce my mortgage payments accordingly?

Or is housing in NZ actually govt guaranteed? I thought it was up to market forces (or is that just when faced with out of control inflation?)

Next Time a minister makes house price predictions, ask them to state what their ideal level of average household debt to income is compared to today More? Less?

Can't square a circle... Want cake for my fridge and belly... Etc etc

Our landed classes "expect" free money from their land. Thus we must transfer more wealth to them. It is an expected entitlement.

They're working very hard and standing on their own two feet for this free money.

They predict house price inflation of around 6% per annum. Did they just use the house prices double every ten years formula?
For those already owning millions of dollars worth of property this will be quite a lot of money especially when you consider fairly low inflation for other things.