Newsletter
Newsletter
NZ doing OK but need for spending discipline and a ‘clear plan’
All small businesses and franchise operators will be pleased to hear that, according to Reserve Bank Governor Alan Bollard, international comparisons of economic statistics have probably resulted in New Zealand's economic performance being understated.
Different countries apparently use different methodologies and data sources, meaning, in some cases, care needs to be taken when comparing economic statistics, Bollard told a meeting of the Trans Tasman Business Circle in Auckland.
He said the Reserve Bank believed that if consistent measurement conventions were used, the income gap between New Zealand and Australia and other OECD countries would narrow.
"Our view is that in New Zealand, some conservative statistical interpretations and particular characteristics of our economy have resulted in the understatement of New Zealand's economic performance.
In international league tables New Zealand is in some ways better off than is often thought."
The Reserve Bank has explored differences in the way gross domestic product (GDP) is measured in Australia and New Zealand. Allowing for these differences, apparently our GDP could be significantly higher relative to other countries than currently measured. A very rough, broad, ball-park might put this up to 10 percent higher than official data, compared with Australia.
"These are not definitive numbers, and we accept there are counter-arguments to them.
Revising New Zealand's GDP does not lift actual incomes or purchasing power for New Zealanders, or raise tax revenues for the government.” In a breathtaking leap of intuitive logic, Bollard said. "We cannot make ourselves better off directly just by measuring things differently."
He adds that more comparable data is important to ensure individuals make well-informed decisions about training, migration and saving, and that financial markets have accurate measures of New Zealand's ability to borrow and repay debt. Governments also need good data to ensure well-informed social and economic policy, and to understand comparability with other countries, including that of our large trans-Tasman neighbour.
The soon-departing governor said the Reserve Bank's analysis did not answer the question of whether New Zealand was closing the trans-Tasman gap. "However, it does argue that the gap is not as wide as most people think."
He noted that the Prime Ministers of Australia and New Zealand recently agreed that their respective Productivity Commissions would look at reforms aimed at increasing economic integration between the two countries. He said problems with the comparability of statistics were an international issue, and his comments were not a criticism of Statistics New Zealand. Rather they were aimed at making people aware of the issues, and encouraging a greater priority being placed on improving New Zealand's economic statistics.
Finance Minister Bill English is also riding the coat tails of Bollard’s intuitive logic and saying the government can’t measure itself to a meaningful balance sheet either.
"Lower tax revenue reinforces the need for the Government to be disciplined in its spending and stick to its plan to get back to surplus in 2014/15," English says.
"Balancing the books and returning to surplus is one of the most important things the Government can do to rebalance our economy towards savings and exports.
"That is why we have made it one of our four main priorities, alongside building a more productive and competitive economy, delivering better public services and rebuilding Canterbury.
"The economic update in the Budget Policy Statement shows growth will be slightly lower in the near term due to a weaker global outlook.
"That makes getting back to surplus an even bigger challenge, but we are committed to keeping a tight lid on spending and putting in place policies that make our economy more competitive. That will continue into the foreseeable future, "English says.
The Budget Policy Statement highlighted its ‘clear economic plan’ for the next three years – including a return to budget surplus and starting to reduce net debt.
English says, “The Government has a comprehensive policy agenda, which will guide Budget priorities over the parliamentary term,” he says.
The main priorities are: responsibly managing the Government’s finances, building a more productive and competitive economy, delivering better public services within tight financial constraints and rebuilding Christchurch.
“Budget 2012 is about sticking to that plan,” Mr English says.
“The economic outlook for New Zealand, while somewhat weaker than forecast in the Pre-Election Update, remains positive. New Zealand’s terms of trade are expected to remain at elevated levels; our largest trading partners are among the stronger-performing countries in the world; and the rebuilding of Christchurch will provide a substantial impetus to economic activity over coming years.
“Nonetheless, there remains a risk that economic events offshore, particularly in Europe, could have a significant negative effect on the New Zealand economy and the Government continues to monitor those events carefully.”
Small business operators will be watching closely.
Updated forecast in the BPS show the Government is on track to post a surplus of $370 million in 2014/15, keep net debt below 30 per cent of gross domestic product and reduce this to 20 per cent of GDP by 2020/21.
The Budget Policy Statement also estimates the fiscal impact of the mixed ownership programme, through which the Government is still desperately trying to sell minority stakes in Mighty River Power, Meridian, Genesis, Solid Energy and Air New Zealand.
The forecast fiscal impact is:
- A $6 billion reduction in net debt. Proceeds will fund new capital investment, such as schools and hospitals, reducing the Government’s borrowing requirement.
- A small reduction in the operating balance before gains and losses. Profits attributable to minority shareholders (forgone profits) will reduce the surplus – which is partly offset by a reduction in finance costs on the reduced debt.
- A small increase in the operating balance over the forecast horizon. Gains on sales are forecast, based on an assumption of $6 billion of proceeds from the mixed ownership programme exceeding the current book value of net assets to be sold.