Cameron Bagrie: independent economist on surplus being pushed out to 2029

Treasury's Half Year Economic and Fiscal Update has painted a concerning picture for the Government books.

It forecasted the deficit will peak at $16.9 billion dollars, and only drop to $60 million in the 2029-2030 financial year. 

Independent economist Cameron Bagrie says this forecast doesn't come with many surprises.

"If you look at the bigger picture, we're now going to have a decade of deficits. And if you look at the last two years, the situation's actually been worsening." 

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Right now, Nikola Willis is pushing out well, she's not
pushing out the surplace, but the surplace is being pushed
out from underneath her to twenty thirty from twenty twenty nine.
She's convinced she can still get there by twenty twenty nine,
but the books out today show well that ain't happening
at the moment. Net debt will peek at forty six
point nine percent of GDP in a couple of years.
Nikola Willis defending not cutting her budget allowances further because

(00:23):
that is.

Speaker 2 (00:23):
What is required to ensure we can make the investments
needed to increase health service delivery, to ensure our schools
have the resources they need to pay their teachers and
deliver learning, that our police have the resources they need
on the front line, and to continue our build and
defense force capability.

Speaker 1 (00:40):
Independent economists Cameron Bagriy is with me on the line now, Cameron,
good evening, good evena. What were your thoughts. I'm looking
at the hay for today.

Speaker 3 (00:50):
Oh, not too many surprises. We're your economy. First half
of this year was obviously going to have the tax
forecast achieving a surplace has been pushed out a year again,
so if you look at the bigger picture, yeah, we're
going to have a decade of deficits. And if you
look at the last two years, rong, the situation's actually
been worse than it actually hasn't been getting better. So

(01:12):
what's called the structural or the underlying deficit, there's been
getting worse than what we call a fair but of
what is called promise me nomics as and I promise
I'll get the books in order. But it's all backloaded
towards the last three years of the forecast, which is
tomorrow store. You're right here, and now we know that
the numbers have been deteriorating for the past two years.

Speaker 1 (01:30):
Is she right when she says, well, I could fix that.
I could cut and I could hack like the you
know Ruth Richardson wants me to do, But that would
undermine the very growth story I'm trying to tell.

Speaker 3 (01:42):
Well, she is going to be hacking because if you
look at what's called the structural deficit is going to
deteriorate for another twelve months. The structural deficit has been
deteriorating for the past couple of years, it's going to
continue to tiate for another twelve months. From twenty twenty
seven to toy and thirty to get the books back
in the red. That's when the government is going to

(02:03):
be crunching government expenditure to the tune they're going to
shrink it by two point three percentage points of GDP.
So there's a fair bit of hacking that's going to
be going on, but it's in the back end of
the forecast. What's been going on now and in the
next sort of twelve months. We're seeing a bit of
spending restraint, but we haven't seen extual fiscal restraint. We're

(02:24):
seeing an awful lot of initiatives on the revenue side
of the equation, and of course when you know that's
led to a deterioration in the structural deificit. So the
hard yards haven't really started yet, right, and the hard
yards really start in twenty twenty seven, and so we.

Speaker 1 (02:42):
And basically we're on a hope and a prayer that
that will actually happen too, aren't we.

Speaker 2 (02:48):
There.

Speaker 3 (02:48):
Well, I guess you look at your zeal superannuation and
look at health needs, infrastructure. You know, with any finance minister,
doesn't matter whether it's Nikola Willis or whether it's opposition
political parties. They're all stuck in what's called the impossible trinity.
Now you've got three corners to a triangle. On one corner,

(03:09):
you've got this thing called fiscal credibility. You want to
show responsible fiscal management. You want to go from depths
at a surplus. You want to pay down a little
bit of debt just in case we have some sort
of economic shock, to make sure you've got a little
bit of money to read employe. You've got rating agencies
that are looking at you. The second part of the
triangle is infrastructure investment, and those infrastructure investment needs are

(03:30):
immense and you're going to have to borrow for that.
And the third part of the triangle is called social services.
You can be on two sides, or you can hit
two sides of the triangle. You can't hit three. And
if a look at the forecast what we're presented today,
it's pretty obvious that social services, your real spending per capita,
is going to shrink, and that will be a point
of vulnerability, not just for the current government, but any

(03:53):
government going forward. Because you can get two out of three,
you can't get three out of three.

Speaker 1 (03:57):
So what's the rabbit that's going to be pulled out
of the hat. They did it with pay equity last budget.
What's next years? Do you reckon there's something to do
with ACC?

Speaker 3 (04:05):
I suspect so and that that's that's an economic comparative anyway,
a lot of those Crown entities. It doesn't matter if
you look at Health New zeal And, you look at
King Aura, or you look at your ACC. They're bleeding cash.
They're adding to the deficit. They've got to turn those
ships around. How do you turn his ACC around? Well,
ultimately someone pays and guess who pays ACC.

Speaker 1 (04:26):
Levies US Treasury reckons the ocr is going to stay
low for the next three years or so. But markets
have been behaving well quite differently. Who who do we
believe on that?

Speaker 3 (04:38):
I believe markets at the moment, Yeah, I think we're
more like that. You get a twenty twenty six high
as a post lock. Treasury's got to set a forecast
that's say potential growth, your productivity growth is going to
pack up. That packs up. You can absorb something to
pick up demand without creating inflation. Inflation is going to
magically stay around two percent. Inflation stays aroun two percent,

(05:01):
the official cash strakes to stay low right out to
about twenty twenty eight. Do I believe in that sort
of magical theory sort of story. The answer is no.
You know, I think the economy is picking up. I
think productivity growth is still going to be reaching me anemic.
What does extualgiested to me inflash is not going to
go back down to two percent, So the reserve being's
going to be back and play sometime in twenty twenty six.

Speaker 1 (05:20):
Good to know, Cameron. Thank you, Cameron Baggriy Independent Economists.
For more from Hither Duplessy Alan Drive, listen live to
news talks it'd be from four pm weekdays, or follow
the podcast on iHeartRadio