They say that making predictions is hard, especially about the future. But what about the past? The Government’s Budget was released on May 24th, and it’s already proving to be wrong about the state of the economy and the books before then.
They said the economy grew at 1.4% in the year to December – it was actually 1.1%. They said the unemployment rate would be 6.3% at the end of the March year – it was 6.7%. The deficit for the 10 months to April is a billion dollars smaller than expected. That’s the errors against data released before the Budget came out or in the subsequent two weeks. In coming weeks, more March year data will come out and we’ll see how wrong Treasury is about them too.
OK, so it’s good sport to make fun of Treasury’s complete ineptitude at a core function. But there’s a serious side too. The saving from borrowing a billion dollars less this year than Treasury thought is about $40 million a year. So, the Government has $40 million a year more to spend than it thought and (assuming the Treasury’s projections are right) still get that $200 million surplus in 2014/15. That means, for instance, it could have not increased class sizes and still maintained its track to surplus.
Of course, that track to surplus is built on Treasury assumptions, too. And, if history is any indication, they’ll be over-optimistic because Treasury’s economic modelling is based on ‘return to mean’ – ie. after a recession there will, sooner or later, be a boom and then a return to average growth. Treasury doesn’t understand the economy as an energy system and the consequences of the end of cheap oil on growth. Treasury has reduced its surplus projections for 2014/15 by 85% since Budget 2011, and what little is left will disappear too unless – as Treasury forecasts – the economy manages to grow more in the next three years than it has managed in the past eight.
So, we’ve got a situation where it appears National didn’t need to sack a thousand teachers to reach its surplus target because Treasury got this year’s deficit wrong but, also, that it looks like it won’t get anywhere near that surplus target because Treasury’s growth projections are ludicrous.
But that doesn’t National off the hook.
They’re the ones who have reduced all the complexity and trade-offs of economic and fiscal management to a arbitrary, binary test: OBEGAL surplus in 2014/15 – Yes/No?
When you’ve got a government making its decisions based purely on a bookkeeping target, then you’re going to get problems when your chief bookkeeping agency doesn’t have a clue what’s going on.