National has reduced the multifaceted, extremely complex job of economy management to a simple bookkeeping goal: a surplus, whatever its size, by 2014/15 (usefully, we won’t know if it has happened until after the 2014 election). Treasury came to the party, projecting a $200m, 0.08% of GDP, surplus for 2014/15 in the Budget. Now, the Reserve Bank’s projected a 1.1%, $2.5b deficit. Oops.
The difference comes down to growth assumptions. Treasury sees more growth in the next 3 years than the past 8. The Reserve Bank’s Monetary Policy Statement sees cumulative growth a third lower than that. Interestingly, its long-run growth assumption is 0.3-0.4% per quarter, half of Treasury’s and basically at the level of population growth.
All up, the Reserve Bank projects nearly $5b extra borrowing than Treasury did just a couple of months ago – pushing net debt above another arbitrary National target, 30% of GDP.
The sad thing is that National says it is more optimistic than Treasury and the reality is that the Reserve Bank is probably too optimistic. And, because National has set that surplus target as the holy grail, it will use more economic under-performance as a justification for further cuts to public services. Never mind the fact that National’s tax cuts for the rich and wasteful spending on subsidies for polluters is at the heart of the deficit.