By Bernard Hickey
Prime Minister John Key has rubbished the long-term fiscal forecasts of the Government's senior economic adviser, saying Treasury couldn't accurately forecast the Budget 44 days out, let alone 44 years out.
He was commenting after Treasury last week forecast net debt would blow out to over 200% of GDP by 2060 from 25% now without changes to the current settings for New Zealand Superannuation. See our article here.
Talking to Lisa Owen on TV3's The Nation, Key referred to how Treasury's forecasts 44 days before the Budgets in 2015 and 2016 the Treasury's forecasts for the Budget were "a mile out".
Key was asked about the Treasury's forecast for a surge in net debt to over 200% of GDP by 2060 without reforms to New Zealand Superannuation.
"The cool thing is Treasury can’t get their predictions right in 44 days, let alone 44 years. They constantly get it wrong," Key said.
He referred to the Treasury's forecasts in 2008 for a rise in net debt to 60% of GDP by 2022/23, whereas instead it would be around 24.5%.
"Okay, so what really happened was under a National-led Government, we got on top of the expenditure that the country was facing. We had years of zero budgets and being cautious with our expenditure and all of those things. We also grew the economy much faster than they thought," he said.
Asked if he was betting his legacy on Treasury being wrong, he said: "I’m telling you it’s a load of nonsense, because they can’t get predictions in 44 days right, let alone in 44 years."
"My point is these are very static models. 44 days before putting together Budget 2015 and Budget 2016, the Treasury were a mile out in terms of predicting what the budgets would be."
See this interview interest.co.nz did with Treasury head Gabriel Makhlouf in September on the issue of the Government ignoring Treasury's advice. Makhlouf saw the Government as 'very attuned' to Treasury and was 'relaxed' about Ministers disregarding Treasury's advice to make 'political decisions'.
Sidestepping flat productivity too
Elsewhere, Key was also dismissive on the issue of productivity, where real output per hour worked has been flat for four years.
"Productivity’s an immensely difficult thing to measure," he said.
"I can show on the shop floor of so many companies in New Zealand where productivity is rising. It can be as a result of lots of different things, for instance, greater emphasis on one particular sector which might be deemed to be lower productivity being a bigger share of the economy," he said.
"So, I mean, all I can tell you is if you look at New Zealand on a relative basis compared to other countries in the world, because you never do an apples for apples comparison, you would say by any definition we’re doing well. We’re increasing the number of jobs, we’re increasing wages, and we’re back in surplus."
NZ 4th worst in the world
Key's comments on productivity turned out to be topical because this morning the Productivity Commission's Paul Conway published a landmark 86-page paper on New Zealand's productivity performance. It looks at why New Zealand's productivity performance has been the fourth worst in the OECD since 1996.
The report uses the Longitudinal Business Database (a type of 'Dunedin study for businesses') to measure productivity performance at the firm level.
Conway said the report showed New Zealand needed to shift from working more hours per person to focusing on generating more value from time spent at work.
“With labour force participation forecast to decline with population ageing, the focus now needs to go on lifting productivity,” Conway said in releasing the report.
"Our report gives the Government further insight into why our productivity performance is not as good as it could be and informs possible changes to the Business Growth Agenda that could make a difference," he said.
The report suggested further work could be done on housing market reform so more people could work in Auckland and on improving the skills composition of migrants. It also pointed to the need for improved competition in the services sector and better connections to international markets.
(Updated with video of exchange above)