Finance Minister Grant Robertson is encouraged by the state of the economy and the Government’s books despite lower business confidence, but is eyeing an elevated currency. Bernard Hickey reports.
The sun is shining brightly on Wellington, both literally and in an economic sense.
Finance Minister Grant Robertson is quietly encouraged by the economy’s progress in the Government’s first 100 days, noting buoyant consumer spending figures and better than expected tax revenues in the final months of 2017.
Robertson told Newsroom in an interview that the Government’s finances and the economy were both travelling well early in 2018, despite some concerns in the business community about a slump in wider business confidence.
He pointed to Treasury figures up until the end of November showing company tax receipts and GST receipts at $531 million ahead of forecasts from the Half Yearly Economic Update just before Christmas. The Government posted a surplus of $125 million for the five months to November when a deficit of $457 million had been forecast.
“It is encouraging,” Robertson said of the Treasury figures, pointing to the high GST returns.
“That probably reflects that the end of the year was actually quite good in terms of consumer behaviour,” he said.
“Overall, it’s positive and tracking well and we hope to see the trend continue.”
Robertson is due to start receiving fresh Treasury forecasts for the year ahead in coming weeks that will set the baselines for the 2018 Budget due in May.
He said he was confident the slump in business confidence about the wider economy was not turning into an economic downturn.
“Historically, we know the trend is much more related to business activity than it is about confidence about the Government or the economy generally,” he said.
“The correlation is with their own activity. People are upbeat about their own activity and I suspect that’s what we’ll see in turn.”
Confidence about the wider economy fell sharply in the ANZ and NZIER surveys of business confidence in the December quarter, but confidence by survey respondents in their own businesses fell to a much lesser extent. The correlation between ‘own activity’ measures and GDP growth is higher than for confidence about the economy in general.
“These are perception surveys at this point in the survey. Those ingrained perceptions about what a Labour Government means or a National Government means for business are pretty hard to shake,” Robertson said.
“Of course, I’d love those business confidence numbers to look different to what they are at the moment. I think they will in time, but I think the underlying activity numbers are good.”
He pointed to high employee confidence in a Westpac McDermott Miller survey and only a slight fall in consumer confidence in an ANZ survey.
“Overall what that shows is that people are confident about their own prospects, both employees and businesses, and that’s a good basis to be going forward.”
Robertson said the lower business confidence figures were not affecting how the Government was rolling out its policies. Instead, the Government was addressing any concerns about uncertainty by rolling out its policy details in the first 100 days, including details of its employment reforms last week, which were well received in the business community.
“Some of the feedback has been about uncertainty, so the more we can roll out the better,” he said.
He acknowledged the one area of uncertainty for employers was around migration settings, as the Government develops its policy to tighten up visa rules for international students and temporary workers.
“We’ve just have to keep reassuring people that we’ve got some criteria changes we want to make. We’re going to make those changes. The exact numerical result is not what we’re aiming at. What we’re aiming for is the change in criteria, and that will then drive a result in terms of numbers,” he said.
He said migration levels were unlikely to drop back to the long-term averages of below 20,000 per year.
Currency and inflation
Asked about surprisingly weak inflation figures last week, Robertson said he trusted the medium term forecasts from the Treasury and the Reserve Bank, which indicated inflation would rise back to around two percent.
“The activity we’re going to be stimulating in the economy by lifting wages, by more regional development spending, by Kiwibuild, that will still have the effect that we’ve seen forecast. It will lift growth and see a slight tick up in inflation,” he said.
“In the medium term, we’re still going to go where we thought. We’re still about our part of the programme, which is about stimulating a bit more activity in the economy and putting more money in the pockets of people who will be spending it. We’re optimistic there.”
Asked about the currency’s rise near-four percent rise to as high as 74.5 USc since the New Year, he said it was dangerous for any Finance Minister to be stipulating levels for the currency.
“But I would point to the statements of both the current acting Governor and the previous Governor around their concerns they’ve had from time to time that the currency can be a bit elevated when it’s up here at these levels,” he said.
“We’ll keep an eye on that, but in the medium term I’m satisfied we’ll be back at the projections we thought.”
Last week, after lower than expected December quarter inflation figures, market economists extended their forecasts for the first Reserve Bank interest rate hikes out into 2019.
Robertson agreed a 2019 start to rate hikes was now more likely than a 2018 start. The Reserve Bank itself forecast in November that rate hikes would not start until 2019.
“This probably makes it more likely to be 2019 doesn’t it? I’m reading the same commentary you’re reading.”