Opinion: Surplus target up in smoke
Wednesday 7 Nov 2012 1:00 p.m.
National must surely know its target to reach a surplus in the 2014/15 financial year is in tatters.
When will it admit it? It can't be far off.
Today Treasury confirmed the country's accounts are $449m worse off in the three months to September 30. $449,000,000! That's almost half a billion dollars less in the kitty than was forecast in just 3 months. The economy went tits up over winter.
And remember what the surplus target is?
Just $197m dollars in 2014/15.
This result is a bad. The numbers look awful. The economy has flatlined.
Labour is right - David Parker is correct when he says, 'the economy is stagnating.'
And the reasons are clear:
Europe has tanked and it's getting worse. China has slowed and so in turn has Australia. The minerals boom isn't what it was. Our big markets, where we sell our goods - have sneezed - and we've picked up a winter cold - that may be hard to shake for a while yet.
Core Crown revenue is down, wage growth is lower, GST is down, corporate tax revenue is down.
It was a good first six months of the year - but it was a passing phase.
As winter hit and the world slowed - so have we. And the growth forecasts for the year ahead are no longer as rosy.
It means we have simply flatlined again.
It's not good for consumer confidence - people have slowed their spending. It's not good for business confidence - will companies make investment and hiring decisions in the current environment? Unlikely.
It's a real worry. The only bonus - if you can call it that - is the low interest rates will remain.
It's hardly a sign of confidence in our economy though. Perhaps with such low inflation and flat growth the Reserve Bank will take the Official Cash Rate even lower than the current 2.5 percent?
It's a distinct possibility. Although the Governor will be wary of re-fuelling the already chaotic and on-fire Auckland housing market further.
So what does all this mean for the Government? It means the surplus target is probably yesterday's promise - and tomorrow's pipe-dream.
The Government needs an economic miracle to get there - and it now looks most unlikely.
They have already softened up voters to ditch the target - it's likely to go further and confirm it - but not until next year probably. Bill English says it is still a target - but the ambition has gone from his voice.
The Government's fingers are still crossed behind its collective back hoping this economy bounces again. But in private - they will know - D-day is coming.
A 2014/15 budget surplus is as likely as Ali Williams starting all four games for the All Blacks on the European tour and returning home as the first choice lock.
For the Government to reach its goal it will need to start chopping spending - not playing with small amounts - but seriously slashing big programmes.
I mean in welfare, Working for Families, superannuation, education and in health - areas where John Key and Bill English have been reluctant to go.
If they go into these areas with a chainsaw - they might get there - but the risk of voter fallout is too risky. If they don't do it - the surplus figure won't be reached, and it doesn't overly matter anyway.
English suggests new spending cuts are possible by saying today, "we will need to remain prudent with new spending and ensure existing spending delivers better public services and good value for taxpayers."
I still think slash and burn is unlikely. They haven't done it in the last 4 years - they're hardly going to start now so they reach a meaningless surplus target. Putting it back a year is the most likely result.
There is one bonus of course if National doesn't make the 2014/15 surplus figure - Labour can hardly bag them for it.
National could have cut spending further - they could have gone much much deeper and ripped the guts out of welfare - but they've been careful and cautious to find a balance
Taking an axe in now could contract the economy even further. That's called slash and burn. It's an election loser.
Best they accept the surplus target is impossible.