Election 2023: Government to open its books, Cameron Bagrie warns deficits could become new normal

The Government will open its books on Tuesday and a leading economist has "some concerns" about what it could show, warning deficits might become the new normal.  

All eyes will be on Wellington on Tuesday with the Pre-Election Fiscal and Economic Update (Prefu) revealing the shape of the public finances. 

Treasury will reveal forecasts for the broader economy, as well as inflation, unemployment, government debt and economic growth. 

The Prime Minister said on Monday the government's finances are in a "challenging position" because of a decline in government revenue. 

Previewing what the Prefu will look like, independent economist Cameron Bagrie told AM on Tuesday he had some concerns.  

"What we're going to see this financial year is the Government likely to be printing about a $10 billion operating deficit. Cash deficits, that is sort of money that's going out the door to fund operation plus capital spending," he said.  

"Those numbers this year and next year are probably going to be up around $25-$30 billion. So that's an awful lot of government debt that the government is going to be issuing over the next 12 to 24 months and there will be some concerns about that direction of change." 

Bagrie told AM co-host Laura Tupou he believes the spending assumptions that will be shown in Prefu will be "barely sufficient to keep the lights on across government".  

"That hockey stick style improvement is going to be very conditional or dependent on the spending assumptions that are baked into the forecasts. What we know is they're going to put in some pretty conservative spending assumptions and that's fine in regard to getting us back to surplus, which I think the numbers will show," he said.  

"At the end of the day, we're going to be testing the credibility of those assumptions because the spending assumptions to me look like they're barely sufficient to keep the lights on across government, i.e. barely sufficient to compensate for the rate of inflation over the next four years."  

Bagrie had a grim warning that he "struggles" to see New Zealand getting back into surplus in the near term.  

"Today's numbers will show our hockey stick style improvement because that's what you get when you put in some spending assumptions that I don't think are going to be sufficient to cover lights-on funding, let alone new initiative funding," he said.  

"I think we're entering an era now where deficits might be the new normal and that's going to require a bit more borrowing on the other side." 

Prefu comes as political parties are out and about around New Zealand revealing policies they want to implement if elected into power.  

But Bagrie questions how parties will fund those new initiatives.  

"If you go back to the Budget the Government announced for 2024, 2025, 2026, there was going to be an operating allowance of $3.5 billion. They've shaved $250 million off the 2025 budget, they've shaved $500 million off the 2026 budget, on top of that, you've got an allocation to health, which is around $1.3-$1.4 billion every year. That's a pre-commitment, that's actually a good thing," he said. 

"What it leaves within the next three budgets is less than $2 billion to play with. Now $2 billion to play with is a number that I don't think is going to cover the rate of inflation across the rest of your core government sector... I'm sort of trying to work out well what drops off on the other side because the more money that goes into new initiatives, the less money you've got for what's called lights-on funding.  

"So we're going to face a bit of tension over the coming few years in regard to whether those numbers actually stack up." 

Watch the full interview with Cameron Bagrie in the video above.