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Prepare for a long and costly commotion, is the message from the Treasury, as the Government opened its books before the elections.
The accounts give a gloomy reading, and the Treasury suggests that the economy, unemployment and the government balance sheet will take longer than expected to recover.
That longer impact will come at a cost, and public debt is now expected to rise to 55.3 percent of GDP by 2024.
That equates to $ 201.1 billion of loans, roughly the same as the latest set of Treasury forecasts, but appears higher as a percentage of GDP because GDP is expected to take a bigger hit than initially expected.
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Finance Minister Grant Robertson focused on the positives, noting that, in the short term, the outlook was much better than the pessimistic forecasts in the latest set of figures, released in the budget.
“The forecasts illustrate our balanced plan to manage debt and reduce the deficit caused by Covid-19, while protecting our investment in services such as healthcare and education,” said Robertson.
Robertson said the pessimistic forecasts were the result of “a weaker global outlook.” This outlook is likely to affect demand for our exports in the coming years.
The figures were released as part of the Pre-Election Economic and Fiscal Update, a set of accounts and forecasts published by the Treasury that show what the government’s own economic agency believes will happen in the coming years.
The theme of the forecasts is that the initial impact of Covid-19 is expected to be much less severe than initially feared. As recently as May, the Treasury feared the economy would contract by nearly a quarter in the three months to June 2020.
ROBERT KITCHEN / Things
Finance Minister Grant Robertson said the pessimistic forecasts were the result of “a weaker global outlook.”
Now, the Treasury expects the contraction to be 16%, still the worst result on record, but much less bad than was feared.
There is also good news in the short term in unemployment statistics.
Treasury statistics for May had pegged unemployment at a 9.8 percent increase this year, now the Treasury believes the unemployment rate will peak at 7.8 percent.
But that’s where the good news ends. More optimistic short-term forecasts are offset by a deeply pessimistic long-term outlook.
The economy, measured by GDP, was set to recover relatively quickly in May, with officials expecting nominal GDP to be $ 374 billion by 2024.
Abigail dougherty
Unemployment is now also expected to remain higher for longer than originally anticipated.
Now the Treasury is fixing the economy to be worth $ 10 billion less, just $ 364 billion by 2024.
Unemployment is also expected to stay higher for longer.
Initially, forecasters expected the unemployment rate to drop back to 4.8 percent by 2024. Now it is expected to stay higher for longer. In 2022, it will remain at 7.6%, falling to 6.6% in 2023 and 5.3% in 2024.
One of the benefits of better short-term forecasts is much smaller budget deficits in the short term as tax revenues are maintained.
The Treasury has cut more than $ 10 billion in the next four years of deficits, but this is also getting worse in the long run.
By 2024, the Treasury expected to cut the deficit to $ 4.9 billion. Now it’s expected to more than double, to $ 12.4 billion.
Don’t expect to see a surplus anytime soon. The government anticipates deficits until the mid-2030s.
One silver lining to this is that the cost of fighting Covid-19 has now been revised downward by $ 4 billion, from $ 62.1 billion to $ 58.1 billion.
There is also a $ 14.1 billion bonus buried in the accounts. Robertson said he’s willing to keep the unspent $ 14.1 billion from the Covid-19 fund in the pot. It is counted toward the debt figures, but would eventually come out of the debt number if Robertson decides never to spend it.
The Treasury also gave us an idea of some of its expectations for the future. Border restrictions are expected to be lifted on January 1, 2022, with all travel allowed thereafter.
It also expects some easing of border restrictions in mid-2021.
Robertson said the government was operating on a different schedule than the one envisaged by the Treasury.
“We will ease the border restrictions as soon as we can,” Robertson said.
He also noted that some aspects of the accounts were stronger than overseas.
He said the unemployment peak of 7.8 percent compares well with “an expected peak of 10 percent in Australia, while countries like the United States and Canada have already posted unemployment peaks above 13 percent.”
