National’s election billboards focus on National’s “Brighter Future” plan. They read more like a wish-list for the tooth fairy. Bill board No 1 says “End the deficit sooner”. Sooner than what? This year’s budget projection? Not likely according to Brian Gaynor in today’s Herald story “Too optimistic government and treasury are getting it wrong.”
His comments are based on the recent release of the Crown financial statements and the Auditor-General’s report on Treasury’s management of the financial guarantee scheme. He says:
The Crown reported a Budget – or “operating balance before gains and losses” – deficit of $18.4 billion for the June year, up from a deficit of $6.3 billion for the previous year. The deficit has steadily increased over the three years of the current Administration. The previous Labour Government had nine consecutive annual Budget surpluses.
Gaynor says the National Government is popular “partly because Key and English are prepared to throw money at almost every problem.” This is not ending he deficit sooner – on the contrary:
The latest $18.4 billion deficit represents 9.2 per cent of gross national product – one of the worst amongst the 30 OECD member countries. Only Greece, Ireland, United Kingdom and United States have Budget deficit/ GDP ratios in excess of 9.2 per cent last year or this year. Deficits have to be financed through additional borrowing, and the Crown’s gross debt went from $53.6 billion to $72.4 billion in the year to June.
National’s tax cuts for the rich haven’t helped the escalating deficit.
The escalating deficit is caused by several factors, including static tax revenue, continued increases in Government spending and the Christchurch earthquakes. The individual tax take has declined from $27.5 billion in the June 2008 year to $23.1 billion in the latest year. This is mainly because of the Government’s tax cuts last year.
When it comes to forecasts, Gaynor has this to say:
Right-of-centre governments often run large Budget deficits because they overestimate the positive effect of tax cuts on the economy, and the Key Government is no exception. The Treasury also has a similar economic philosophy and made a 2011 year tax revenue forecast of $53.9 billion in last year’s Budget compared with the actual outcome of $51.6 billion.
In this year’s Budget statement, the Treasury forecast a Budget deficit of $9.7 billion for the year to next June, to be followed by a $4.1 billion deficit in 2013, a $700 million deficit in 2014 and a $1.3 billion surplus in the June 2015 year. Once again these forecasts seem to be far too optimistic but there will be another chance to assess the situation when the Treasury issues its pre-election economic and fiscal update on October 25.
The PREFU will be interesting indeed, but will it be fact or more fiction.
The fact that National has chosen to run a billboard series like this indicates that Labour’s criticism of its lack of plan may be hitting the mark. The one thing we can be sure of is that it will be poll-driven. Also that Labour’s plan for fairer tax combined with a careful approach to fiscal policy is connecting with voters.
Pollyanna John promised a brighter future in 2008 – that hasn’t happened. Voters may well be starting to think that the same slogan is wearing very thin for a rerun in 2011, particularly when the facts don’t back it up and the future for the world economy does not look that bright.