The Finance Minister says the Government’s bean counters may well have to revise down their GDP growth projections ‘a little bit’ – National says this will cost millions of dollars

Finance Minister Grant Robertson says the Treasury may well have to downgrade its economic growth forecasts “a little bit” later this year.

This will cost the Government millions of dollars in lost revenue, according to National’s Finance Spokeswoman Amy Adams.

On Budget day Treasury estimated New Zealand’s Gross Domestic Product would grow by 2.8% this year.

But now Robertson says that forecast may be looking a bit too rosy.

“It may be that in this year… they revise that down a little bit,” he says.  

The next time Treasury will update its forecast of the New Zealand economy is in its half-yearly economic and fiscal update in December.

Robertson’s comments come just a day after Treasury warned of “mixed messages” in the economy that could impact the Government’s books.

“Although we think growth held up in the June quarter, weaker confidence, in conjunction with other data, highlights the risk that growth over the coming fiscal year may be weaker-than-forecast in the Budget,” the Treasury said in a release on Monday.

Robertson couldn’t put a number on how much a “little bit” of a downward revision would impact the Government’s tax take or its spending plans.

“There are a lot of factors that contribute to how much revenue we’ve got – that’s what the half-yearly update process is for, to bring all that together.

“We won’t have a specific indicator of that, until that point.”

Millions of dollars in lost revenue

But Adams says the downward revision will likely cost the Government millions of dollars in lost revenue.

“One percent less GDP growth is about $800 million a year in revenue and that does not even start to account for the impact on workers and on wages.”

She says Robertson seems to be the “last person in New Zealand” to admit the Treasury’s growth projections were a little too optimistic.

In recent weeks bank economists and economic forecasting agencies, such as Infometrics, have downgraded their growth expectations.

The Reserve Bank is expected to downgrade its growth projections on Thursday as well.

“Grant Robertson has been slavishly sticking to 3% [growth forecast], now even he has had to admit, on the basis of Treasury saying, we are too high and that it’s coming down.”

Robertson says the economy is in a transition period – “when you’re in that transition, there may be some bumps along the road.”

He says Treasury’s main point on Monday was the cooling of the housing market.

“That’s absolutely true, it’s part of transitioning away from relying on an overheating housing market to prop up the economy.”

He remains confident that average economic growth will remain at 3% over the coming years.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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66 Comments

Here we go ... Get ready to walze NZ.

“when you’re in that transition, there may be some bumps along the road.” .... For sure, and shite happens too , should have had that wisdom before dishing money out and sign agreements GR !

Many of my clients exhibited the same pattern of behaviour prior to coming to me: give optimistic business forecasts to their financiers, spend the cash, then make up every excuse in the world as to why it wasn’t their fault that the business was in financial trouble. Taxinda seems to be sticking to the BRR so what’s next.....tax?

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...I was ready several years back ...but Mr key managed to kick the can down the road with excessive immigration and debt. Entirely predictable.

...I was ready several years back ...but Mr key managed to kick the can down the road with excessive immigration and debt. Entirely predictable.

Don't expect Mr Key's can kicking MO to be deserted any time soon. Can you seen any other alternatives? I can't.

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Making it happen with the people and resources we already have - not expecting waves of immigrants, asset sales and financial trickery to do it for us. In the old days we called it work..

So you're an advocate of the "hard yards" approach to economic sustainability

Me? I see personal wealth as potential and the only way to ensure sustainability is to ration that wealth to last my lifetime. Governments have two levers I don’t have 1. The ability to take wealth off others and re distribute it 2. The ability to borrow against future income over a never ending timeframe. My financial politics are about the judicial use of those levers as they load the beast of burden that produces the income and for some there is no limit as to the burden they will apply as long as they don’t have to pay it.

They campaigned on comical assumption of 4-5% growth to fund all their spending. In power seems they're struggling to even reach half that, and that is with the global economy still doing well. It's going to go pear shaped rapidly if world economy starts to slide.

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It does my head in trying to reconcile all of the points of view. So National’s growth was due to housing and immigration, a fools paradise, but the COL are going to stop that and still achieve the same growth with policies that aren’t clear, yet now there might be some bumps as we transition to those unclear policies but we are sticking to our financial plans because everything’s ok despite the business confidence surveys. The cognitive dissonance is palpable.

This house of cards is heading to receivership ...

" we will make the changes. she said " Not sure if GR has broken the bad news to her yet !!

Unfortunately there is no receivership; the taxpayers are on the hook for everything that this lot commit us to.

This house of cards is heading to receivership ...

You're a bundle of contradictions.

Cullen and Clark had NZ in recession before the GFC. Every other Labour govt since the first ended in 1949 has left NZ in recession. Should be little surprise at the way things are trending.

"Clark's fifth Labour Government reduced debt from 22.6 per cent of GDP in 2000 to 5.5 per cent in 2008...That same Labour Government went from a $386 million deficit in 2001, to a $2.8b surplus in 2008.."
As an alternative set of thoughts...
https://www.stuff.co.nz/national/politics/96756247/Is-National-really-be...
Yes, the Key Government had the earthquakes and the GFC to deal with, but those were relative unknowns to the Governments that preceded it.

Didn’t the GFC occur because the economies were overheating? Check out the rise in Govenent income and expenditure over the period up to the GFC. Labour were spending like drunken sailors on payday.

Ex Expat,

Surely you understand that the GFC was exogenous to the NZ economy. In all the books i have read on the subject,NZ was never once mentioned.We were simply swept up in a GLOBAL financial crisis,triggered by the sub-prime mortgage fiasco.
In 2009,our Debt/GDP ratio was around 9%,hardly the sign of "spending like a drunken sailor". It then rose very sharply,as it would have under any government.
Had the National Party been reelected last year,they 'promised' to reduce the Debt/GDP ratio to 15% and I fundamentally disagree with that. If we want a decent,fair society,we have to invest in it;in healthcare,education,infrastructure and so on and it is crystal clear now,that successive governments have failed to do that. We have a lot of catching up to do and in terms of government debt,we are very well placed to do so.

Check out spending in the years after 2004. https://tradingeconomics.com/new-zealand/government-spending

Living within ones means is a virtue in my book, which is why I’m debt free at 57 and able to sustain my family and I until I cark it at ~ 84. I don’t mind governments borrowing but not to buy a metaphorical lunch for votes.

If we can have a decent society (e.g. well trained and paid teachers and nurses and warm homes for the poor) while reducing debt:GDP I am happy to wait a few more decades before becoming debt free.

https://tradingeconomics.com/new-zealand/government-debt-to-gdp

Debt free should not be the sole goal. Many of the homeless are debt free but I wouldn't want to trade places with them.

The Government will never be debt free. It’s just a matter of how much the servicing of that debt improves or impedes the future prosperity of our nation. If spent on election bribes like the current lot then we are putting an unnecessary burden on our youth.

The "bribe" call by you is just political:

You/National = Bribe
Labour/Col voter = Responsible spending for a better NZ

Compare with National's proposed tax cuts before the election:

You/National = Reduced burden on hard working kiwis of money that is not required by Government and which will stimulate growth in hands of "taxpayers" (code for rich).

Labour/Col/Me = bribe to rich while watching NZ go down the toilet and become another USA where the poor die on the streets with no housing or healthcare.

I love how baby boomers, the majority of which vote National, pull out the "we vote National for the next generation" which is code for "we want tax cuts so we can go on more cruises while creaming universal super".

The young voted Labour as it offered free education as a goal. Of course you/National call this a "bribe" while Labour/me call this investment in our young and NZ's future.

Again, it all depends on what colour glasses you are wearing on how you call it.

Yes, that pretty much sums it up. The battle ground is fought over the swinging and new voters, not the dyed in the wool types like me. I do my part to make my children aware by pointing out to them how much is taken out of their pay packets and asking them if they think it’s spent wisely I also ensure that they vote from their first legal moment to encourage participation in our democracy and ownership of the outcome.

I am so amused at the label of "tax cut". The tax adjustment was to re-align the tax table to correct for inflation over the time period since the tax table was last adjusted. If this doesn't ever happen, at some point virtually everyone will end up paying tax at the highest rate for most of their income due to the scourge of inflation. Sadly, this basic concept of adjusting for inflation gets discarded due to partisan politics, and it turns into the typical party hack soundbite description.

Why the tax tables are not indexed for inflation escapes me. Without this indexing, every year we are raising our taxes by stealth due to inflation. We index the various payments such as super, work and family, etc. each year. The taxation should be indexed as well.

If you earn the same income in year 1 and 2 and pay less tax in year 2 = tax cut.

Would be nice to lower tax rate (through increasing marginal rates) but until everyone is making $70k a year those who earn more need to pay more.

Marginal rates are not indexed as it would lower tax take = less for health, education, welfare etc...

If the marginal rates were indexed, then the tax take in constant year dollars would remain constant. In current year dollars, the tax take will increase due to the inflation induced income increase. Do the maths...

I know that many people have had their income increase since the the current tax rates were set. All of their income increase gets taxed at their highest marginal rate. This seems okay, as taxation should be progressive. But, their cost of living has also increased in a similar rate as their incomes have increased.

Due to the increased overall taxation, the real disposable income starts reducing unless the tax rates get indexed. That is, unless you are making an income that is considerably higher than $70k/year, at which point it doesn't matter much whether the tax rates are indexed.

Indexing matters the most for the people that are earning in the $45-$75k level. These are the people that get squeezed when inflation pushes their incomes upwards and they pay an increasing amount of tax with a fixed real amount of money, while dealing with an increasing cost of living. I'm sorry that you do not see this.

I see it, I just don't agree that the most well off should get the biggest tax cuts.

My wife and I are both 6 figure earners so we would have received the maximum benefit of the tax cuts. We rejected National's tax cuts for what we hope will be a better and fairer NZ.

Indexing for WFF and benefits makes sense as these are subsistence support amounts. Indexing for top marginal rates just means less for the more needy. Of course your real income erodes if your income remains static and there is inflation and no tax relief. However, with the low rates of inflation over the last several years there were more needy and other areas where spending was needed rather then giving the biggest tax cuts to taxpayers earning over $70k.

Again this is a political question. You think more should be left in the hands of the rich, I think that money is needed to make NZ a better place by paying for health, education, welfare etc...

Weird jump to a conclusion... nothing I've written states or even suggests that.

I am in favor of a fair and just society. Both sides need to be fairly indexed for real inflation, the WFF and benefits as well as tax. The long-term end result of no indexing is a flat tax, which is horrible for those in the lower income tax brackets. You are advocating a real increase in taxes in the low and moderate income brackets as compared to the high income tax brackets. As you already know, the change in taxes wouldn't make much difference to your high disposable income. It would however make a difference to the moderate income earner disposable income as the change in disposable income is commensurately larger for them.

Add: an excellent example is to look at the tax tables from 1980. It had a few more breakpoints than the current tax table. Even with that, the highest tax rate was at $22k. If these table break values had never been adjusted for inflation, how do you think it would have worked for the lower income people in NZ?

Not having the income tax indexed for inflation results in an erosion of the progressive nature of the income tax table.

It bothers the bejeezus out of me that the indexing was championed by National and vilified by Labour, when the clear result is a net benefit to the cohort that tends to vote for Labour. That it was successfully characterized as a "tax cut for the rich" is tribute to the victorious application of partisan soundbite spin instead of rational analysis.

See my comment in response to your earlier one.

The result of National's proposed tax cuts would have been a tax reduction of $10.77 a week to anyone earning more than $22,000 per annum, increasing to $20.38 a week for anyone earning more than $52,000 per annum. . The top 10 percent of income earners would have got $400 million from National’s tax cut, which is as much as the bottom 60 percent would've received.

The more you earn the bigger your tax cut. It is not a conclusion, it is a fact.

Leaving the tax rates as is and providing more benefits for low income earners targets support to those who need it the most. Compare this with increasing marginal tax rates which benefits the highest income earners the most with little to no benefit to low income earners (e.g. anyone earning under $14k got nothing from National's proposed tax cuts).

Anyone earning under $14k doesn't pay tax...maybe we should cut their tax by another 100%...

Nice mixture of types of stats. I would recommend using a consistent basis for comparison. If you wish to use absolute numbers, I would suggest noting how much the top ten percent pay in tax so that there is a fair basis for comparison. I have issues with people that use deceptive statistics in order to make a point. It would be better if you used the same metric for both sides, and then compared both sides with the opposing metric. Cherry picking your stats presented is a poor method for presenting your viewpoint.

No worries.

People earning up to $14k pay 10.5% income tax.

See https://www.ird.govt.nz/how-to/taxrates-codes/rates/itaxsalaryandwage-in...

I have issues with liars and fools. You are one or the other.

Either way you're a waste of my time.

You are correct, they have a tax payment.

What is the typical persons net to/from gov when earning $14k? I would put forward the position that any/all benefits received should be considered to be a tax credit. This is an issue for low income earners as their net income climbs rather slowly with an earned income increase due to the commensurate reduction in the benefits received. Just refreshed my knowledge of the benefits available... It was surprising as to the amount of benefits available to low income earners. I admit I was a bit ignorant on the details before now.

Respect to you for stepping up!

When I am wrong, I freely own up to it. You?

No, WFF should absolutely not be indexed, it needs to be locked at its current rate so wage inflation can haul people out of welfare dependancy. When the middle class is increasingly relying on govt handouts to make ends meet something has gone very wrong. The welfare state should be there as a safety net for those that have fallen on hard times due to unexpected/unfortunate events, not there to prop up the middle class and low paying employers.

Starve the poor into prosperity. Good luck with that.

No-one is talking about starving the poor into prosperity. I'm talking about getting rid of middle class welfare, bringing cost of living back to sanity and forcing employers to pay wages that enable people to work and earn enough to pay their bills instead of turning more and more of the population into beneficiaries like we have been doing. When a household with a six figure income and three kids qualifies for handouts then there is something very wrong with the system.

This is the essence of the TOP UBI concept. I am conflicted about the UBI idea. I like that it reduces the penalty for finding work, whereas the current penalty for working when currently on .gov money is rather high. That is, the marginal income rate is quite low for people receiving .gov funds. Long term welfare dependency is something that should be shunned excepting for the truly unfortunate. The question is, who defines who is truly unfortunate?

There are several very negative aspects to a true UBI. I look at my personal position as one negative aspect. I would not work if there was a UBI, as I would happily receive the funds to increase my lifestyle as my marginal income rate under UBI would make it less attractive to work and I have enough savings from my prior 35+ years working to live a reasonable lifestyle without working. I currently work to improve my overall lifestyle (and I enjoy what I do which is also a benefit, but I'm also enjoying a lot of non-work activities so I'm now conflicted about the work thing). Implementing a true UBI would result in almost eliminating my desire to work. This is not a positive outcome for society. There are other unintended outcomes for UBI. Whether the net positives would outweigh the negatives, that is beyond my pay grade to predict!

Agree. This is one reason why I voted for Key twice...but he did nothing, and National campaigned last time around on increasing WFF.

All it does is depress wage growth by subsidising company wage bills, and subsidise property investors by raising the rent floor. National should have showed the leadership to get rid of it.

Key threw away the opportunity for this sort of reform - he had enough popularity and support to do it in the initial years. Like yourself... voting twice was enough - got to the point of anything but him. Now I detest the main - shallow, self serving and ignorant he is.

Not to mention his biggest regret was not being able to change the New Zealand flag.

Out of all the arbitrary things a Prime Minister could have looked back on and regretted (road toll, wage inflation, suicide stats, debt to GDP, child murder stats) not being able to change the flag is his biggest regret? Man of the people!!!

I don't think those who earn more need to keep paying more, given we're targeting productive workers far too much and letting off unearned income (e.g. capital gains) so easily. It would be more effective to lower company and personal tax rates and tax some of that unearned income instead.

Agreed. Just make sure that ALL capital gains are taxed, no exceptions.

We agree on something. I am all for a comprehensive capital gains tax (including the family home) and a decrease in income tax rates.

I find more than some amusement with my post currently having zero thumbs up, and your post agreeing with me having three thumbs up. Goes with the territory here...

It's a trust issue... You're judgment has been compromised by your earlier comments so they are seeking my assurance on this one;)

I see it instead as voting by the "dyed in the wool" partisans that reflexively vote based on their preconceptions rather than comment content.

You still haven't shown how my judgment has been compromised. For that matter, you haven't addressed my comments about the unfairness without inflation indexing, but instead used a bag o mixed stats to defend your viewpoint without addressing my concerns about inflations long term affect on the marginal tax rate.

The trust issue should be put toward you. You have explicitly misrepresented my viewpoint earlier in the thread. This suggests that you are not trustworthy...

From that chart, spending went up 22% from 2004 to 2017. But don't forget population went up 19% over the same period.

So spending per capita raised about 2.5% over that 13 year period. A 0.2% increase per person per year.

WFF and accommodation supplement money-go-rounds probably make up a fair chunk of the increase too..

Pretty flaccid overall.

Btw I am well aware of the GFC. I consulted for 3 years as Banks pulled lines on my clients at the same time as their business models fell apart, especially due to commodity price drops. I was overseas at the time but recall that NZ was doing very nicely on the coat tails of big commodity prices and a rampant finance company market. Sure we didn’t have banks collapse but the finance companies were just as bad e.g. SCF

Yes we had a slump just before the gfc with finance companies, mezzanine finance etc collapsing.

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Realistic. You don't shut down a Ponzie scheme without a few difficulties.

Yet you predict no difficulties when spending up a storm. No wonder the nurses were so staunch. It’s going to be interesting watching the rest of the Public Service chewing on the dead rat.

But the questions becomes why are the nurses / public service demanding a pay rise. May have something to do with the costs that just keep increasing yet wages don't. I still come back to "reap what you sow" - the country has dug itself into a hole - now it has to get itself out of said hole.

Bad Robot, I guess the greedy bunch are in disbelief for the umpteenth time that trickle-down economics has failed us yet again.

Has there ever been a painless economic restructure without resulting into redundancies and layoffs?
Rest assured that those businesses that do not make it to the end of the correction are the inefficient ones that solely rely on unsustainable stimuli to survive.

Is this the governments fault as well

https://www.radionz.co.nz/news/business/363540/nz-leading-companies-lag-...

New Zealanders seem to think the government owes them something - it doesn't - get off your arse and stop complaining. It's called personal responsibility.

Exactly my point. It isn't the governments fault if certain NZ businesses feel down in the dumps despite global economic resurgence (US, EU and Japan's recovery and reinflation), record terms of trade and construction boom; maybe that is where these businesses deserve to be if they can't make the most of these favourable economic conditions.

This, more than anything else, shows how unreliable economic forecasts are. I still remember BERL examination of the budget, saying that it adds up! off course it adds up, any average accountant worth their money should be able to prepare a budget that adds up. The question is about "assumptions" and their sensitivity. Is the budget and proposed action scalable should the underlying assumption realise different to expectations? can the proposed plans be sustained in a different economic climate? how robust is the contingency plans? instead, you get a report that says if $X in tax is earned then $Y can be spent with a surplus of $Z and a net debt of $A. Totally worthless.

Agree. And that's too often the case in many economists' work.
Many (not all) of the bank economists fail to outline scenarios that may affect their central positions.

Robertson seems to contradict Jacinda's statement of yesterday evening where she said, quote:
“We also have strong forecast growth…"
see/watch full article on Interest's site

“ It’s only words and words are all I have.” What a lyric, what a song and how many of this ilk of an apparent finance minister have sung it before & will sing it again.

Big difference between forecast and actual. This lot are the new "Fail Army" ! The sooner they get hit by a bus in 2020 the better.

Neither are counting correctly. Nation saying 'this will cost millions' is pathetic at this stage in global draw-down. The question is whether they believe themselves, or whether they're stuck with reporting that the Emperor is fully clothed.

Or if it's even the Emperor
Like yen during the Great Inflation, the eurodollar breakdown and deflation of the last decade has opened the door for an alternative. Yet, none has materialized. China’s “big news” was seven and almost a half years ago. If they could’ve, they would’ve. Instead, they are as locked into dollars today as they were at that point, if not more so.

"That’s ultimately the point that gets lost in everyone picking sides. There is only one side. The Chinese and the euroyuan ran into the same issues (including Hong Kong) as the euroyen and euroeuro, the same thing that plagues the eurodollar. It’s a credit-based system meaning that what needs to be done is not replace which denomination with what other inside of it. The whole credit-based foundation needs to go first."
http://www.alhambrapartners.com/2018/08/07/the-door-is-open/