In Focus

Budget Decisions 2012

Monday July 09, 2012

I’m pretty sure that a CE or CFO that went to their Board having openly identified their organisation’s “single largest vulnerability” would then expect their future performance to be measured against success in reducing such vulnerability.


Achieving a ‘surplus’, while at the same time, the nation’s position will get even worse, seems to me to be bordering on benign neglect. So, the forecasts for nation’s debt are, for me, the true bottom line for the Government’s budget. I note that it was in the Budget Speech of only two years ago that this government identified, and rightly so, that “NZ’s largest single vulnerability is now its large and growing net external liabilities”. So, surely the Government’s (or anybody tasked with turning around the nation’s fortunes) performance should be judged against this criterion.



Looking at the forecasts contained in the Budget documents for external debt, it is clear that this vulnerability is expected to get noticeably worse (as illustrated). As a result, I can’t help but be disappointed with the outlook projected in this year’s Budget. Again, there remains a focus (or charade) around ‘bringing the books into the black’, but a clear worsening in the ‘nation’s books’. Even more disappointing, though, is the unconvincing nature of the Government’s own confidence. With usual statements around building a competitive economy and investing in our future, the forecasts show a remarkable lack of confidence in the export sector’s future potential.


In particular, while trading partner growth (i.e. the size of our existing markets) is expected to continue to surge by 3.5% to 4% per annum, NZ’s export sector struggles to put together an expansion of 2% per annum. In other words, we aren’t even standing still, we (i.e. NZ Inc) are expected to lose market share. So we can’t even blame the rest of the world for our problems.




That the forecast itself could be termed optimistic is not of primary concern. It is the overwhelming dependence of the forecast growth on the re-build of Christchurch.That there is little else underpinning the growth story is telling. With little else to bank on, the prospects facing the New Zealand economy are one of modest economic growth over the coming three to four years. The winners, if all goes to plan, will be the building and construction sector businesses and workers – although capacity constraints here are already of concern. And what of the losers – they may well decide to head to distant shores.


Although the official forecast does assume that our migration loss currently running at an annual rate of 4,000 turns in to a migration gain of 19,000 in the year to March 2014.Here’s hoping that most of them are builders, engineers, plumbers, carpenters, electricians, and the like. Otherwise, the forecast may be at further risk; and who knows what that would do to the much-vaunted ‘return to surplus’