Key points
- Weaker than expected spending, business activity delaying recovery
- Treasury revising down its economic and fiscal forecasts
- Weaker activity hitting the tax take, making it harder to balance books
- Mid-year economic update next month
- Longer term — productivity, ageing population, climate change big challenges.
Treasury’s chief economist has warned a weaker economic outlook means a delay in a return to growth.
Dominick Stephens has told an accountants’ conference that recent indicators have been softer than expected in the Budget and this has forced a downward revision of its forecasts.
“Treasury’s May Budget forecasts anticipated a return to economic growth in the second half of 2024, but the latest data now suggests that the recovery will begin later.”One should always read real-time economic data with caution, but this presents further downside risks to the Treasury’s productivity, economic growth, and tax revenue forecasts.”
Stephens gave no details of revisions, which would likely be in next month’s half-year economic and fiscal update.
However, he said weaker consumer spending, and the contraction in the manufacturing and service sectors were factors.
The May Budget forecast growth of 1.7% for the year ended June 2025, but most private sector economists have been forecasting growth of around 1%.
Stephens said the Government’s financial outlook has also deteriorated and forecasts of the size and duration of budget deficits may also be revised.
“Economic growth falling short of expectations has been making it harder for the Government to bring the books back into balance.
GST collections ‘surprisingly low’
“Recent monthly data has shown that tax revenue overall has been close to the Treasury’s Budget forecast, but the detail reveals that GST collections have been surprisingly low, relative to underlying economic activity. If this trend continues, there could be further downside risks to the Treasury’s revenue forecasts,” Stephens said.
He said, longer term, the country had to contend with the poor productivity outlook, which had generally been worsening for more than a decade, along with the pressures from an ageing population and climate change.
But he said future growth should benefit from more private investment, new technology, improved overseas links, and changes to regulations.
By Gyles Beckford of rnz.co.nz
