February 4, 2025 • 3 mins
Treasury has warned the Government that 'significant reforms' or 'reductions to public services' will be needed in the not-too-distant future if it sticks to its current, restricted spending track.
New reports reveal the Government will not post a surplus under the traditional Obegal measure until 2031 - even with this relatively tight spending.
Infometrics Principal Economist Brad Olsen explains the challenges impacting the Government - and how they can potentially turn this around.
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Episode Transcript
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Speaker 1 (00:00):
Ryan Bridge, Treasury and Wellington has warned the government might
have to reduce public services if it wants to stick
to its spending plans. It's also forecasting that we won't
get back to surplus until twenty thirty one. The Finance
Minister Nikola Willis decided not to publish Treasury's longer range
forecasts in December, saying the projections were highly uncertain infa
(00:21):
metric's principle. Economist Brad Olson is with me, Hey, Brad,
good evening, are they highly uncertain?
Speaker 2 (00:28):
Oh, the projections are always highly uncertain, But I don't
think that's a reason not to publish them. With the
fiscal strategy model, I mean that is important for us
thinking about where things go next. The Government of the
day never sets out policy for the next fifteen years,
or if they do, they can't realistically believe that they
will actually achieve that for the next fifteen years. Everything
is sort of up for grabs over that sort of
(00:50):
period of time. So it's a little bit frustrating that
the Government of the day didn't want to publish those
figures because we do use those as forecasters, as modelers
to try and understand bit where things are going. But
suffice to say the Treasury has highlighted in there that
it's very difficult on the current settings to have effectively
the same size of government, but also with the sort
(01:12):
of levels of spending that the government wants to make.
And that is the difficult challenge the government has is
that on current settings we're spending a lot more than
the government is earning. That means we're in deficit. That
deficit will last for longer. And you can either grow
your revenue or you can cut your expenses, and there's
no really other two ways around it.
Speaker 1 (01:31):
And the problem with cutting you with cutting your revenue
ie tax cuts. And we had Nickola Willis on the
show last night talking about the potential potential for corporate
tax cuts or for faster depreciation on manufacturing technology, which
I think is something that I really think is something
they'll look at. That stuff costs money in the short term,
but it takes a while to pay off in terms
(01:52):
of growing the pine, isn't it. It does?
Speaker 2 (01:55):
And it also, I mean it's locked in. It's not
like it's just a one year change. You know. If
you change corporate tax settings or depreciation or similar, that's
a long term each and every year thing. It's also
clear though that the government does need to consider some
of those I mean, you look as well at the
likes of investing Z and trying to get more investment
into the country from overseas. Definitely an area that I'd support.
(02:17):
You know, economically that's critical, but it's harder to sell
to overseas when we have a corporate tax rate at
a higher level than many other jurisdictions globally. You know,
people will focus a little bit more on what sort
of text they have to pay on the profits that
they make. But like you've highlighted that, if you change
too much on the revenue side, you make what is
already a very difficult sort of set of circumstances even
(02:39):
more challenging. And so for the government, you know, they're
having to think about not only the sort of size
of investments that they are making in the short term
and the size of you know, budget surpluses are budget
allowances rather, but also longer term. Treasury highlighted that the
current large levels of infrastructure investment that we need to
make as a country, which I'm pretty sure everyone is
(02:59):
broadly on with. They say, given how high those are,
the operating costs of having so much additional new infrastructure
is going to cost us big in the long term
as well, So we really are now facing some pretty
thorny economic and fiscal issues.
Speaker 1 (03:13):
How you're about to go to Jane Jones's party, I
hear have fun.
Speaker 2 (03:19):
Indeed, thank you very much.
Speaker 1 (03:21):
That is brad Olsen. It's coming to us from the
winterless North. For more from Heather Duplessy Allen Drive, Listen
live to news talks.
Speaker 2 (03:29):
It'd be from four pm weekdays, or follow the podcast
on iHeartRadio.
Ryan Bridge, Treasury and Wellington has warned the government might
have to reduce public services if it wants to stick
to its spending plans. It's also forecasting that we won't
get back to surplus until twenty thirty one. The Finance
Minister Nikola Willis decided not to publish Treasury's longer range
forecasts in December, saying the projections were highly uncertain infa
(00:21):
metric's principle. Economist Brad Olson is with me, Hey, Brad,
good evening, are they highly uncertain?
Speaker 2 (00:28):
Oh, the projections are always highly uncertain, But I don't
think that's a reason not to publish them. With the
fiscal strategy model, I mean that is important for us
thinking about where things go next. The Government of the
day never sets out policy for the next fifteen years,
or if they do, they can't realistically believe that they
will actually achieve that for the next fifteen years. Everything
is sort of up for grabs over that sort of
(00:50):
period of time. So it's a little bit frustrating that
the Government of the day didn't want to publish those
figures because we do use those as forecasters, as modelers
to try and understand bit where things are going. But
suffice to say the Treasury has highlighted in there that
it's very difficult on the current settings to have effectively
the same size of government, but also with the sort
(01:12):
of levels of spending that the government wants to make.
And that is the difficult challenge the government has is
that on current settings we're spending a lot more than
the government is earning. That means we're in deficit. That
deficit will last for longer. And you can either grow
your revenue or you can cut your expenses, and there's
no really other two ways around it.
Speaker 1 (01:31):
And the problem with cutting you with cutting your revenue
ie tax cuts. And we had Nickola Willis on the
show last night talking about the potential potential for corporate
tax cuts or for faster depreciation on manufacturing technology, which
I think is something that I really think is something
they'll look at. That stuff costs money in the short term,
but it takes a while to pay off in terms
(01:52):
of growing the pine, isn't it. It does?
Speaker 2 (01:55):
And it also, I mean it's locked in. It's not
like it's just a one year change. You know. If
you change corporate tax settings or depreciation or similar, that's
a long term each and every year thing. It's also
clear though that the government does need to consider some
of those I mean, you look as well at the
likes of investing Z and trying to get more investment
into the country from overseas. Definitely an area that I'd support.
(02:17):
You know, economically that's critical, but it's harder to sell
to overseas when we have a corporate tax rate at
a higher level than many other jurisdictions globally. You know,
people will focus a little bit more on what sort
of text they have to pay on the profits that
they make. But like you've highlighted that, if you change
too much on the revenue side, you make what is
already a very difficult sort of set of circumstances even
(02:39):
more challenging. And so for the government, you know, they're
having to think about not only the sort of size
of investments that they are making in the short term
and the size of you know, budget surpluses are budget
allowances rather, but also longer term. Treasury highlighted that the
current large levels of infrastructure investment that we need to
make as a country, which I'm pretty sure everyone is
(02:59):
broadly on with. They say, given how high those are,
the operating costs of having so much additional new infrastructure
is going to cost us big in the long term
as well, So we really are now facing some pretty
thorny economic and fiscal issues.
Speaker 1 (03:13):
How you're about to go to Jane Jones's party, I
hear have fun.
Speaker 2 (03:19):
Indeed, thank you very much.
Speaker 1 (03:21):
That is brad Olsen. It's coming to us from the
winterless North. For more from Heather Duplessy Allen Drive, Listen
live to news talks.
Speaker 2 (03:29):
It'd be from four pm weekdays, or follow the podcast
on iHeartRadio.
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