Treasury has outlined its economic expectations for the next five years, and it says the books are looking good. But despite that the Government is holding back on much needed spending on housing and health, reports Thomas Coughlan.
It’s HYEFU time, when journalists journey to Delphi — well, Treasury — where the Government’s sages outline their economic forecasts for the next five years.
There’s a lot of good news here. The books are good, really good. Treasury has forecast massive surpluses going forward to 2023, when it will post an $8.4 billion surplus. The Government will post a combined $26.9 billion in surpluses over the next five years.
And debt is low, madly low.
Even Treasury’s pessimistic scenario sees the Government’s net debt to GDP ratio rise to just above 20 percent by 2022. That’s only slightly higher than the Government’s target of 20 percent. The main forecast projects debt will be 19 percent of GDP in 2022.
The optimistic forecast sees the same figure fall to just above 15 percent by 2023, while the main forecast projects debt will be 17.4 percent of GDP in that year.
Yet New Zealand has an infrastructure deficit that is so large it has required an entire Government agency to be established to measure it. Despite that the Government is not planning the capital spending that Treasury says is needed.
Health and housing infrastructure deficits
The problem is most acute in health, where a Treasury report from earlier this year identified 19 percent of hospital buildings were in poor or very poor condition and the Government would need to spend $14 billion over the next ten years to bring hospital assets up to standard.
So far, the Government has announced $750 million in capital spending for DHBs. Robertson and Health Minister David Clark have said there will be more, but by the look of things its unlikely to nearly be enough.
HYEFU says DHBS will see $1.4 billion in capital spending over five years, with an additional $300 million in spending undertaken by the Ministry of Health on Behalf of DHBs. That falls far short of what Treasury says is needed.
Even if additional Budgets double, or treble, or even quadruple this capital spending it will still fall short of what Treasury forecasts is required.
The truly enervating thing is that the Government could quite easily spend this, and more and not just by blowing its surpluses. It could borrow, too.
The Government’s goal of getting net core Crown debt to 20 percent of GDP is already spectacularly low.
The ratings agencies who price our debt, have previously told Newsroom that Robertson could bump his goal by 50 percent to 30 percent of GPD by 2022 without them even batting an eye. Treasury’s most optimistic forecasts have net debt just above half of this level by 2023, the most pessimistic forecasts see debt at two-thirds.
The other big HYEFU story is housing.
At Budget, Treasury slashed its forecasts for residential construction investment, which has lead the Reserve Bank to forecast KiwiBuild will massively under-deliver by adding just 14,000 extra homes over the next five years.
HYEFU has not vastly updated these forecasts, meaning Phil Twyford has yet to convince the “kids at Treasury” that KiwiBuild will add to housing supply. Part of the problem are capacity pressures that currently plague the construction industry.
Treasury believes these are unlikely to ease — and could even worsen, as immigration trends down to its long-term average of net 25,000 new arrivals each year, less than half what it is now.
But KiwiBuild faces another challenge in a downturn in house prices. This could lead to developers triggering their buying off the plans initiative.
This means the Government will essentially purchase unsold KiwiBuild homes from developers – and it will cost the Crown dearly. KiwiBuild relies on money from sold homes being recycled into capital to build new ones. That doesn’t work if the Government ends up purchasing the houses and it could mean extra funding will be needed it Twyford wants to keep to his goal of building 100,000 homes in ten years.