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Speaker 1: Finance Minister Nicola Willis certainly isn't sugar coating our financial situation.

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Speaker 1: She says, it is dire. Debt is up, the tax

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Speaker 1: takers down. Brad Olsen is the infametric's principal economies with

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Speaker 1: us tonight, Brad, good evening, Good evening. Let's start with

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Speaker 1: the couple of numbers jump out at me. Firstly, forty

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Speaker 1: seven percent of GDP. That's government debt to GDP forty

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Speaker 1: seven percent. It will peak at Is that have we been?

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Speaker 1: I mean, I'm sure we have been higher, but certainly

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Speaker 1: not in the last week, while before COVID we were

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Speaker 1: at about twenty Yeah.

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Speaker 2: Look, I mean that debt figure is ugly, and I

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Speaker 2: think it highlights that over time we've built up that

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Speaker 2: level of debt time and time again to get through

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Speaker 2: some pretty challenging economic times. Recently, of course, the pandemic

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Speaker 2: was still a pretty big hit in the government did

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Speaker 2: need to respond to it. The challenge, of course, is

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Speaker 2: that having racked up so much debt to do that,

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Speaker 2: at some point the bill comes for repayment, and we're

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Speaker 2: still continuing to see the government spend more than its

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Speaker 2: earning for the next couple of years. Which means that

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Speaker 2: we're not actually even starting to pay it down. We're

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Speaker 2: just sort of adding more and more on. So the

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Speaker 2: fiscals have gotten a bit out of kilter given the

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Speaker 2: fact that that debt's higher. But that's also coming about

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Speaker 2: because government revenue is expected to be thirteen billion dollars

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Speaker 2: less over the four cast period than expected at budget,

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Speaker 2: but the government will be spending nearly six billion dollars

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Speaker 2: more than they thought at budget time. That wider gap

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Speaker 2: with more spending less money coming in, that's a very

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Speaker 2: difficult place to get yourself out of, and.

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Speaker 1: That's why we're going to borrow Barbiere. Is there a

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Speaker 1: number where because we're a small trading nation, I know

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Speaker 1: there are lots of countries around the world with far

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Speaker 1: worse ratios than that, But is there a number at

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Speaker 1: which you start to go alarm bells ring?

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Speaker 2: I mean, certainly Treasury has highlighted before that somewhere between.

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Speaker 2: Once you get up to it sort of over fifty,

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Speaker 2: you really start to get quite worried, just because if

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Speaker 2: there is another shock of any sort, you know, be

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Speaker 2: it a something that hits our primary and export markets,

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Speaker 2: if you have another natural disaster and other pandemic. New

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Speaker 2: Zealand needs the ability to respond and we know that

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Speaker 2: in those tough times we often can't rely on our

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Speaker 2: own self sufficiency quite as much. Now you look at

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Speaker 2: other bigger economies, they just have a little bit more

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Speaker 2: sort of natural heft. They can trade amongst themselves locally

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Speaker 2: a lot more. We can't quite as much in New Zealand.

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Speaker 2: We're a lot more dictated by how global economic growth

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Speaker 2: goes and how our exports and production go. So if

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Speaker 2: those get hit, we do need a little bit more

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Speaker 2: buffer room to get ourselves out of the pickle that

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Speaker 2: we might find ourselves in. That's where that deck capacity

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Speaker 2: becomes so important. And again we know that we've got

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Speaker 2: a lot of infrastructure we need to invest in and

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Speaker 2: that's important. But with the fact that government is still

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Speaker 2: going to be spending more than it's earning over quite

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Speaker 2: a long period of time, we're still borrowing for just

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Speaker 2: the day to day costs and that is quite challenging

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Speaker 2: and it means we're still half a decade away from

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Speaker 2: seeing the books back in surplus. That's a long time

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Speaker 2: to wait.

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Speaker 1: It certainly is Tell me what is your read on

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Speaker 1: the OBI gal X. Is it justified that we are

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Speaker 1: making the acc deficit basically off the books.

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Speaker 2: I mean, I think it's very convenient timing, of course,

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Speaker 2: to come out with the change at the moment. To

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Speaker 2: be fair, even with the change, the effective surplus has

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Speaker 2: been pushed out nearly two years, so again it's sort

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Speaker 2: of quite a big shift there. Realistically, I think there

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Speaker 2: is some merit into what the government has done with

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Speaker 2: that figure, but I don't think it helps that there's

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Speaker 2: all these different numbers that we now cast about on

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Speaker 2: so may be useful, but to be fair, I think

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Speaker 2: we're all trying to get our heads around it. Having

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Speaker 2: had it dropped on us, you know, a couple of

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Speaker 2: hours ago. It still will take us some time to

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Speaker 2: read through it. But definitely a change that I think

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Speaker 2: we're all going to have to get our heads around.

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Speaker 1: Were you surprised to see the Finance Minister basically stick

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Speaker 1: to her guns that the books have changed quite drastically,

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Speaker 1: deteriorated quite drastically between the budget and now her fiscal

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Speaker 1: position is basically the same.

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Speaker 2: I was a little bit surprised that the government isn't

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Speaker 2: looking to in fact almost go steeper and deeper when

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Speaker 2: it comes to making some tough choices around spending. The

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Speaker 2: Finance Minister, of course confirmed those two point four billion

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Speaker 2: dollar operating allowances, but I think that also highlights the

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Speaker 2: current economic reality for the government, which is that we've

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Speaker 2: made such big commitments on government spending the last couple

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Speaker 2: of years. It's very easy to do those and to

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Speaker 2: commit them at the time, very hard to unwind them back.

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Speaker 2: And so you know, some people are saying, well, geez,

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Speaker 2: we feel like we're in austerity politics. I mean, really,

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Speaker 2: at two point four billion each and every year, we're

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Speaker 2: clearly not. But even then, even with what are some

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Speaker 2: of the smallest budget allowances in a reasonable amount of time,

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Speaker 2: the government is still going to be spending more than

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Speaker 2: thirty percent of GDP on operating expenses all the way

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Speaker 2: out to twenty twenty nine. I mean, it highlights that

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Speaker 2: we're not getting our sort of spending relative to our

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Speaker 2: income under control particularly quickly. But I think as well

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Speaker 2: the minister's probably stuck between a bit of a rock

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Speaker 2: and a hard place here. Ryan, if you had you'd

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Speaker 2: have some people if the Minister cuts the allowances, say well,

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Speaker 2: government's not spending enough on New Zealand, and other people

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Speaker 2: probably saying the government spending too much. I mean, you

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Speaker 2: really can't win when you're the Minister of Finance.

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Speaker 1: No, and she has an election to worry about in

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Speaker 1: twenty twenty six, and the last thing she would want

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Speaker 1: to do would be to look like Ruth Richardson and

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Speaker 1: then you know, throw throw a one term government out

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Speaker 1: the window. Let's look at the GDP twenty twenty five

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Speaker 1: one point six percent, twenty twenty six three point four percent,

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Speaker 1: twenty twenty seven two point seven percent. Now, if you

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Speaker 1: look at per capita, we're actually still going backwards in

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Speaker 1: twenty twenty five. But why is it that we go

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Speaker 1: up and then down again, Brad In twenty twenty six

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Speaker 1: we're at three point four and then in twenty twenty

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Speaker 1: seven we go down to two point seven.

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Speaker 2: I think there's sort of two elements coming through there.

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Speaker 2: One is a bit of a mathematical bounce back that

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Speaker 2: as those interest rates come down and you start to

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Speaker 2: see the economy unlocked, there's a little bit of pent

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Speaker 2: up demand that likely comes through after some weaker grosser

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Speaker 2: because you didn't have where you had negative levels of

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Speaker 2: activity this year. You get slightly better next year, but

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Speaker 2: it's still not amazing. Then the year after, once you

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Speaker 2: really sort of get the economic motor running again, mathematically,

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Speaker 2: that looks a touch faster than before. After that, though,

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Speaker 2: that sort of trend slow down comes through because we

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Speaker 2: just don't expect to be getting that same level of

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Speaker 2: productivity coming forward. And I think that the worry as

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Speaker 2: well is that when we look at the different components

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Speaker 2: of the economy, the government clearly isn't going to be

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Speaker 2: stimulating a huge amount of activity. We're worried about the

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Speaker 2: likes of global factors, and so we're not quite so

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Speaker 2: sure that exports are really going to drive things into

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Speaker 2: the future. We know that productivity hit means that sort

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Speaker 2: of general business profitability isn't going to be amazing, and

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Speaker 2: so it won't be contributing huge amounts, which sort of

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Speaker 2: leads households as the main potential driver of the economy

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Speaker 2: going forward. That's sort of a difficult proposition when interest

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Speaker 2: rates are not going to drop low, they're just going

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Speaker 2: to go back to sort of normal. So I think

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Speaker 2: that the sort of growth center for the economy is

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Speaker 2: a little bit harder to pick at the moment. And

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Speaker 2: again that makes Treasury's job quite hard because there's a

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Speaker 2: lot of stuff that everyone wants to spend on, but

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Speaker 2: without stronger economic growth, you don't get as much text

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Speaker 2: take and you don't have the money that you want

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Speaker 2: to spend.

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Speaker 1: Great points, Brad brad Olsen in for Metrics Principal Economists.

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