Budget forecasts: Do they stack up?


Yes you can't escape it – Thursday is Budget day!

All the Government's spending plans based on what Treasury is forecasting for the economy.

Billions of dollars are riding on those predictions, but how accurate are the numbers?

Newshub decided to ask independent economist Shamubeel Eaqub to compare six key figures from the 2015 forecast to what happened.

The figures cover house prices, the 90-day bank bill rate (which reflects the Official Cash Rate), the unemployment rate, how much the economy is growing (GDP), the 10-year bond rate (the interest rate the Government borrows money at) and inflation.

Budget forecasts: Do they stack up?

"It was a year ago, but the forecasts from the 2015 Budget haven't stood the test of time well," says Mr Eaqub. "They thought things would be much better across the economy. Only thing 'better' was house prices, which rose at more than double the rate of forecast."

"Forecasts are always wrong. Even the [Reserve Bank of New Zealand], whose sole purpose is to set interest rates at the goldilocks level has been getting its forecasts of interests rates awfully wrong for the better part of a decade. The Treasury is no better."

Mr Eqaub says the economy is not growing as fast, so fewer jobs for Kiwis. On the plus side, living costs are barely rising. As a result, the Reserve Bank has cut interest rates and they are likely to remain low for some time.

The housing market is soaring, much faster than expectations. Low interest rates have helped.

Lower interest rates are good for borrowers, but really tough on savers, particularly retirees relying on interest on their deposits.

The cost of borrowing is cheaper for government too, which means they can choose to either pay off debt earlier from the savings, or borrow more for the same dollar cost to invest in social and economic infrastructure.

Watch the video.