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NZ 2020 pre-election economic and fiscal update - ASB

Fuseworks Media
Fuseworks Media

The ‘money’ line for the Pre-Election Update is that the core Crown debt outlook is similar to the Budget’s.

A better near-term but milder long-term economic outlook has slightly reduced the nominal GDP forecast.

Heading into the election, the outlook as presented has few surprises for political parties and their policies.

The Pre-election Economic and Fiscal Update (PREFU) turned out to be surprisingly similar to the Budget for the numbers that arguably matter the most. Net core Crown debt is forecast to finish the June 2024 fiscal year at $201.1 billion, barely higher than $200.8 billion in the Budget outlook. The ratio of debt to GDP for 2024 has lifted nearly 2 percentage points to 55.3%, primarily because the level of nominal GDP is forecast to be slightly lower than previously forecast.

Largely as we expected, the economy is forecast to hold up better in the near term relative to Budget expectations, but with a milder recovery over the longer term. The changed economic outlook means a slightly smaller overall starting point for operating deficits, but a more gradual recovery over the longer term to the point that the 2024 operating deficit is now expected to be larger than in the Budget forecast.

With only a marginal shift in the debt outlook, the revised fiscal position offers few last-minute surprises to political parties as they prepare their policy offerings heading into the October election. However, there are a couple of things politicians and the voting public should keep in mind. The size of the future debt outlook is substantial, and will fall on future generations to repay. The outlook is also incredibly uncertain. Treasury has done several alternative scenarios to cover some of the possibilities. Our own economic forecasts still have a lower level of nominal GDP than the latest Treasury forecast (by slightly more than the downward revision Treasury has just made), highlighting the risks to future revenue growth. The core message is, even as debt levels lift and the figures look increasingly abstract in size, for the sake of future generations we need to make sure we get the best bang for buck right now.

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