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EXPLANATOR: Despite its name, Covid-19 cannot be easily explained with numbers.
You can count cases, infection rates, government money spent, but it’s still one of those messy natural events that confuses the spreadsheets the world runs on.
However, the Treasury is required by law to try, forecasting the economic impact of the pandemic and how the government’s books will respond.
On Wednesday, the Treasury released its “Pre-Election Fiscal and Economic Update,” or PREFU, basically a good introduction to the economic situation before the elections so that parties can plan their spending accordingly.
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These are the important numbers from the briefing that should interest you.
Peak unemployment: 7.8% in March 2022
The Treasury forecast in May that the unemployment rate would peak much higher and much earlier, with unemployment at 9.8 percent at the moment. The official September figure has yet to be released, but is expected to be much lower than 9.8 percent as the country came out of the lockdown faster than expected and the wage subsidy kept more people working.
In real numbers, this means a peak of about 221,000 people out of work, compared to 268,000 expected.
ROBERT KITCHEN / Things
Finance Minister Grant Robertson told the media that a government he was part of would seek to open the border faster.
But not all are good news. The Treasury now expects unemployment to peak lower, but hold out for longer as border restrictions remain in place longer and the world economy remains in crisis longer. This has a special impact on tourism and international education, which in turn hit unemployment. It is expected to reach 7.7 percent in 2021 and then stay above 7 percent until 2023, when it drops to 6.6 percent, and then 5.3 percent the following year.
This forecast is based on the assumption that all border restrictions will be lifted by January 1, 2022, so a vaccine or other solution could spiral out of control sooner or later than expected by the Treasury. In fact, Finance Minister Grant Robertson told the media that a government he was a part of would seek to open up faster.
Economic contraction: 16.3% in three months
The Treasury believes that during the three months between March and June, when the lockdowns were strongest, New Zealand’s economy contracted by 16.3 percent, the worst contraction on record. Statistics NZ will release official figures on this on Thursday.
Throughout the year through June, that translates into a reduction of 3.1%, followed by a projected reduction of 0.5% in the year through June 2021, and a growth of 3.6% in the year through June. 2022, which is a bit more like medium-good economic growth again. This is a bigger drop than Australia’s, but less than most other comparable economies.
This is again based on that assumption about the lifting of border restrictions in January 2022 and without a large community outbreak.
Payment exceeded by house prices: 2.9% vs. 8.5%
The Treasury forecasts very modest wage growth over the next four years.
In the year to June 2021, it expects wages to only increase 0.9 percent, followed by 2.5 percent the following year, 2.6 percent the following year, and 2.9 percent in the year to June 2024. For comparison, wages were 4.4% higher between June 2018 and June 2019.
While this wage growth remains well above inflation in the prices of most things, food and other things, it is well below inflation in house prices.
House prices are expected to contract 4.4 percent in the year to June 2021 before rebounding rapidly, with growth of 4.7 percent in the year to June 2022, 7.4 percent. one hundred the following year and 8.5 percent the following year.
This will make house prices increasingly unaffordable for those not yet on the ladder, as their wages grow more slowly than house prices, which are being cushioned by a very expansionary monetary policy of the Bank of the Reservation.
Joseph Johnson / Stuff
A second lockdown has put companies on a roller coaster ride.
Debt: $ 201 billion in 2024, or 55.3% of GDP
Government debt increases as money is spent and the economy struggles. This is because a smaller economy means less tax revenue, but also more spending on benefits and wage subsidies. In the year to June 2021, this gap is the widest: the Treasury expects the government to spend about $ 31.7 billion more than it receives.
For all of this to work, governments borrow money, currently at extremely low interest rates. By June 2024, the Treasury expects the Crown’s net central debt to reach $ 201.1 billion, or about 55.3% of GDP that year.
This may seem very high, but it is actually much lower than the debt levels of many comparable countries. walk into the crisis, much less follow it.
This debt route will be a big political problem. The workers promise to pay for it lightly with their new tax change (worth just $ 500 million a year, not much). Robertson is not willing to cut back on any public service to get it back faster. National has said, then hasn’t said, and then back to say that it wants to cut it to 30 percent of GDP in the next 10 years, a change that will likely cost around $ 80 billion. But he has also promised not to cut spending on health, benefits or education. Meanwhile, ACT wants to bring it closer to 20 percent of GDP and is much more comfortable with big cuts.
