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.