December 17, 2024 • 9 mins
The Government's half-year fiscal update paints a bleak economic picture for the years ahead.
It won't be until 2029 that the government will finally be out of deficit - longer than previously forecasted.
Despite that, Finance Minister Nicola Willis is pushing back on calls to make more cuts to government spending, saying the government has to manage an increasing population and demand for public services.
To talk through the numbers, economist and Infometrics chief executive Brad Olsen joined Nick Mills, where he also discussed the idea of superannuation reform.
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Speaker 1 (00:07):
You're listening to the Wellington Mornings podcast with Nick Mills
from News Talks'd.
Speaker 2 (00:12):
Be joining us now is Infametric's chief executive Brad Olsen.
Speaker 3 (00:16):
Good morning, Brad, Good morning.
Speaker 2 (00:19):
You'd be one of those guys that's really well organized
for Christmas.
Speaker 3 (00:21):
Ay, look, you'd like to think so, and I have
done some dropping, but to be fair, there's.
Speaker 4 (00:27):
Still a few more things on the list. It's one
of those things that, you know, the closer to the
end of.
Speaker 3 (00:31):
The year we get and it's surprisingly every year how
busy it gets, which it shouldn't because it happens every
twelve months that we get to December and everything, you know,
seems to accelerate. So I'm a fair way down the path,
but I haven't fully organized everything yet. I am, though,
coppying a lot of stick from people at suggesting that
cash might be the most efficient gift this Christmas. That
(00:52):
hasn't gone down well with a lot of friends.
Speaker 2 (00:54):
Well, you know, it's funny used to say that because
we talked about the idea of giving an experience rather
than a gift or and someone rang up and said,
you know, in the old days, when your auntie or
your grandmother gave you a cash you know, it was nice,
but it was all so funny, you know, like I
didn't really make that much difference. But today, if you
gave someone a fifty dollar note, they would look at
you and think that one lot of time because they
(01:15):
haven't even probably seen one before exactly.
Speaker 3 (01:18):
I mean, to be fair, the bank transfer would be
the most effective because then the you know, you don't
have to sort of worry too much about car and.
Speaker 4 (01:24):
The cash around.
Speaker 3 (01:25):
But that also gets a little bit hard when you've
got to start to exchange bank account numbers and similar So, yeah,
cash is not a bad option, I feel, right.
Speaker 2 (01:32):
I want to know, talking about a bad option. Good
way to segue. Put it really really simple. Don't put
it in your economist speak. Put it in a Nick
Mill's speak, Wellington morning speak. How bad are things right now?
Speaker 3 (01:46):
Oh? Look, so the government accounts are pretty challenging there,
I think. Look, the big one for us looking at
them was just how much less money the government is
expected to bring in at the same time as spending
more Over the next four years to twenty twenty eight.
The government is now expected to bring in thirteen billion
dollars less in revenue, but it's going to have to
(02:07):
spend nearly six billion dollars more on all of the
services that it provides.
Speaker 4 (02:11):
Now.
Speaker 3 (02:11):
As a household, if you saw your income was coming down,
but you knew your outgoings were going up, you'd have
to trim something pretty serious in the middle.
Speaker 4 (02:19):
Here.
Speaker 3 (02:19):
At the moment, we are just putting it on the
mortgage for future generations, and that is unlikely to change.
We're not going to get back into a surplus now
where we take in more than we spend for another
half a decade out of twenty twenty eight.
Speaker 4 (02:32):
Twenty nine.
Speaker 3 (02:33):
So it is a long time coming when we will
actually start to see the books back in balance. And
that highlights that the government has some pretty limited spending
choices for the years ahead, but also that the government
finances remain unbalanced for such a long time.
Speaker 4 (02:46):
That means more debt.
Speaker 2 (02:47):
Is there a correlation between the government and us. I
mean when you started talking about you know, our incomes
less than our expenditure and putting more money on them,
you know, borrowing more money. Well, that's what small businesses
have been doing for four years, really, haven't they. They've
been borrowing more, putting more on their home loans to
keep their business is going. So is there a correalition
(03:08):
between small business New Zealand, which is the hub, and
the government.
Speaker 3 (03:13):
Yeah, there is a bit, and I think that's one
of the reasons that we're expecting a bit of a
change around in the next year or so in terms
of how the economy is going to develop and then
what grows us into the future. Because you look at
the government finances in there isn't quite as much available
in there. The government won't be stimulating a lot of
economic activity themselves. That like export doing all right at
(03:34):
the moment, but still a lot of worries globally, so
again that sort of import export picture might not turn
around a lot businesses, though, are going to see some
better operating conditions. Is going to be a bit more
spending from households because the more the traits have come
down and that gives them a bit more cash. But
of course, like you say, a lot of people have
taken on quite a lot of debt in the last
couple of years and they're going to need to repay
(03:55):
some of that try and claws some equity back, and
that means that again you're not sort of going to
see huge, huge amounts of private investment, which really just
leaves households as sort of the main driver of growth
the next couple of years. And that's part of the
reason why we think that, yes, the economy perks up,
but we're not on sort of rocket ship to the
moon sort of growth. We're just trying to get back
to sort of normal, solid plotting along growth.
Speaker 2 (04:17):
How do we get to surplus quicker? What's the secret
secret ingredient?
Speaker 3 (04:22):
There's I mean, look, it's fairly simple, but the options
are quite unpalatable as well. You either make a whole
bunch more money to fill in that hole, so you'd
either you know, you'd have to tax more or text differently,
and of course, you know, we seem to have quite
aversion to having that conversation as a country. Or we'd
need to know, trim our sales to sort of match
what we've got a bit more, and that would mean
(04:44):
much much deeper cuts to public spending and similar and
it is something that I think certainly on that second one,
you know, people are not happy with that idea, but
it is worth while pointing out that even by twenty
twenty nine, the government is expected to be spending still
I think above thirty one percent of GDP on government expenditure.
(05:04):
Now that's higher than it was sort of pre pendemic.
So even though we're going to get out of that
sort of pandemic era and out of the high inflation era,
we're still going to see this period where we're still
spending quite a bunch of money.
Speaker 4 (05:16):
So there are some very difficult.
Speaker 3 (05:17):
Options, and I feel like part of the challenge at
the moment is that you've got on one side people saying,
you know, we should be, you know, spending more as
a government. And of course, you know, the government is
disappointing that group of people by not spending quite as much,
but it's also disappointing other people on the other side
saying we should cut spending a lot more. And so
I feel like the government's sort of in a pretty
difficult zone in the middle trying to disappoint everyone all
(05:40):
at once.
Speaker 2 (05:41):
What about trying to get big numbers off the benefits.
I'm talking big numbers. I mean, we've got nearly two
hundred thousand people on benefits, So if we got that
down to one hundred, dropped that by half, would that fix?
Speaker 3 (05:50):
It would certainly help? And of course that's important sort
of more broadly, and you know, not only from a
fiscal cost, but because having people often ifiting it into
jobs is important.
Speaker 4 (06:02):
I mean that is.
Speaker 3 (06:03):
Tricky of course, when the unemployment rate is going out,
there are far fewer job opportunities over time. But again
as that spending starts to come around and back into
the economy next year, we expect a bit more hiring
that starts to come through. One difficulty though that we have,
excuse me, we've seen in the economic and benefit numbers
more recently is that yes, there are more people on
(06:25):
the benefit but increasingly quite a driver of that has
been people who are going on to what we call
the job seeker Support, Health Conditions and Disability subgroup, and
that's often for people who have often they're reporting sort
of mental health challenges and similar at the moment, so
I think we've got a real challenge across the country
at the moment where you know, some of those health
(06:48):
challenges and the fact that people do really struggle to
find an appointment with a mental health professional and.
Speaker 4 (06:53):
Similar that actually is affecting how much they're ready to
get into a job and whether or not they can
start looking.
Speaker 3 (06:59):
So again, I think we've got some pretty fundamental issues
we need to look at. I would, however, also highlight
that at the moment you Zealand is the biggest part
of our spending and the biggest growth that we're seeing
is coming from the New Zealand New Zealand Superannuation. And
we're now spending more on New Zealand Super than we
are on education as a country, and about seven times
more on superannuation than we are on defense. So we've
(07:23):
got some big questions I think to be asked around
some of that social spending and the fact that we
haven't and we seem unwilling to adjust something like the
New Zealand Super age because it's costing us.
Speaker 2 (07:32):
Do you reckon it's the age or means testing.
Speaker 4 (07:36):
I think it might be parts of both.
Speaker 3 (07:37):
I mean, I think the age bit is sensible, given
that back in the nineties when we last at the age,
people are spending a certain proportion of their lifetime on
New Zealand Super and they're now spending longer than that.
And I think, you know, we're seeing people that are
working longer anyway, But maybe we do need to look
at something like means testing, but probably more fundamentally than that.
Speaker 4 (07:57):
If we're moving away from a.
Speaker 3 (07:58):
Purely universal system, which we possibly do need to, I
think that's time to have a whole overhaul of it
and sort of go what is the purpose of New
Zealand Super? Is it just to pay people a bunch
of money because they're now past retirement age. Is it
to top up a certain amount of income so that
people in their retirement have a certain.
Speaker 4 (08:16):
Quality of life?
Speaker 3 (08:17):
Because we haven't actually talked about this sort of stuff
for a couple of decades, and we seem to just go, well,
because I've paid my.
Speaker 4 (08:22):
Taxes before, I'm a title to it. Now.
Speaker 3 (08:25):
If we have that mentality, over the next twenty or
so years, we're going.
Speaker 4 (08:28):
To find a whole bunch.
Speaker 3 (08:29):
Of people that move out of the workforce under retirement,
and a whole bunch of people who are lack of
people who are moving into the workforce because we're not
having as many kids. That equation becomes very unbalanced very quickly.
Speaker 2 (08:40):
Right, what are you doing for Christmas? We've done the
heavy stuff. Now you've done the heavy living thing. What
are you doing for Christmas? What do you got to
look forward to?
Speaker 3 (08:46):
Look, I'm still working up until the twenty fourths is
lots of economic numbers we want to try and get
through so that we're ready for whatever comes in twenty
twenty five. But then I'll be heading out to some
friends over in the Wided Upper for Christmas and then heading.
Speaker 4 (08:59):
Up to Great Barrier Island to do a hike.
Speaker 3 (09:02):
With some friends over New Year's It'll be the first
time I've ever put on tramping peck, So hopefully we'll
talk in in the New Year, but otherwise I might
need a little bit of time to recover after that.
Speaker 2 (09:12):
Good on you, Good on you, and thank you for
everything you've done for our show this year and our station.
You have been amazing, amazing voice of sensibility, Brad Olton.
Have a merry Christmas. Thank you.
Speaker 4 (09:22):
Same to you.
Speaker 1 (09:23):
For more from Wellington Mornings with Nick Mills. Listen live
to news Talks It'd Be Wellington from nine am weekdays,
or follow the podcast on iHeartRadio.
You're listening to the Wellington Mornings podcast with Nick Mills
from News Talks'd.
Speaker 2 (00:12):
Be joining us now is Infametric's chief executive Brad Olsen.
Speaker 3 (00:16):
Good morning, Brad, Good morning.
Speaker 2 (00:19):
You'd be one of those guys that's really well organized
for Christmas.
Speaker 3 (00:21):
Ay, look, you'd like to think so, and I have
done some dropping, but to be fair, there's.
Speaker 4 (00:27):
Still a few more things on the list. It's one
of those things that, you know, the closer to the
end of.
Speaker 3 (00:31):
The year we get and it's surprisingly every year how
busy it gets, which it shouldn't because it happens every
twelve months that we get to December and everything, you know,
seems to accelerate. So I'm a fair way down the path,
but I haven't fully organized everything yet. I am, though,
coppying a lot of stick from people at suggesting that
cash might be the most efficient gift this Christmas. That
(00:52):
hasn't gone down well with a lot of friends.
Speaker 2 (00:54):
Well, you know, it's funny used to say that because
we talked about the idea of giving an experience rather
than a gift or and someone rang up and said,
you know, in the old days, when your auntie or
your grandmother gave you a cash you know, it was nice,
but it was all so funny, you know, like I
didn't really make that much difference. But today, if you
gave someone a fifty dollar note, they would look at
you and think that one lot of time because they
(01:15):
haven't even probably seen one before exactly.
Speaker 3 (01:18):
I mean, to be fair, the bank transfer would be
the most effective because then the you know, you don't
have to sort of worry too much about car and.
Speaker 4 (01:24):
The cash around.
Speaker 3 (01:25):
But that also gets a little bit hard when you've
got to start to exchange bank account numbers and similar So, yeah,
cash is not a bad option, I feel, right.
Speaker 2 (01:32):
I want to know, talking about a bad option. Good
way to segue. Put it really really simple. Don't put
it in your economist speak. Put it in a Nick
Mill's speak, Wellington morning speak. How bad are things right now?
Speaker 3 (01:46):
Oh? Look, so the government accounts are pretty challenging there,
I think. Look, the big one for us looking at
them was just how much less money the government is
expected to bring in at the same time as spending
more Over the next four years to twenty twenty eight.
The government is now expected to bring in thirteen billion
dollars less in revenue, but it's going to have to
(02:07):
spend nearly six billion dollars more on all of the
services that it provides.
Speaker 4 (02:11):
Now.
Speaker 3 (02:11):
As a household, if you saw your income was coming down,
but you knew your outgoings were going up, you'd have
to trim something pretty serious in the middle.
Speaker 4 (02:19):
Here.
Speaker 3 (02:19):
At the moment, we are just putting it on the
mortgage for future generations, and that is unlikely to change.
We're not going to get back into a surplus now
where we take in more than we spend for another
half a decade out of twenty twenty eight.
Speaker 4 (02:32):
Twenty nine.
Speaker 3 (02:33):
So it is a long time coming when we will
actually start to see the books back in balance. And
that highlights that the government has some pretty limited spending
choices for the years ahead, but also that the government
finances remain unbalanced for such a long time.
Speaker 4 (02:46):
That means more debt.
Speaker 2 (02:47):
Is there a correlation between the government and us. I
mean when you started talking about you know, our incomes
less than our expenditure and putting more money on them,
you know, borrowing more money. Well, that's what small businesses
have been doing for four years, really, haven't they. They've
been borrowing more, putting more on their home loans to
keep their business is going. So is there a correalition
(03:08):
between small business New Zealand, which is the hub, and
the government.
Speaker 3 (03:13):
Yeah, there is a bit, and I think that's one
of the reasons that we're expecting a bit of a
change around in the next year or so in terms
of how the economy is going to develop and then
what grows us into the future. Because you look at
the government finances in there isn't quite as much available
in there. The government won't be stimulating a lot of
economic activity themselves. That like export doing all right at
(03:34):
the moment, but still a lot of worries globally, so
again that sort of import export picture might not turn
around a lot businesses, though, are going to see some
better operating conditions. Is going to be a bit more
spending from households because the more the traits have come
down and that gives them a bit more cash. But
of course, like you say, a lot of people have
taken on quite a lot of debt in the last
couple of years and they're going to need to repay
(03:55):
some of that try and claws some equity back, and
that means that again you're not sort of going to
see huge, huge amounts of private investment, which really just
leaves households as sort of the main driver of growth
the next couple of years. And that's part of the
reason why we think that, yes, the economy perks up,
but we're not on sort of rocket ship to the
moon sort of growth. We're just trying to get back
to sort of normal, solid plotting along growth.
Speaker 2 (04:17):
How do we get to surplus quicker? What's the secret
secret ingredient?
Speaker 3 (04:22):
There's I mean, look, it's fairly simple, but the options
are quite unpalatable as well. You either make a whole
bunch more money to fill in that hole, so you'd
either you know, you'd have to tax more or text differently,
and of course, you know, we seem to have quite
aversion to having that conversation as a country. Or we'd
need to know, trim our sales to sort of match
what we've got a bit more, and that would mean
(04:44):
much much deeper cuts to public spending and similar and
it is something that I think certainly on that second one,
you know, people are not happy with that idea, but
it is worth while pointing out that even by twenty
twenty nine, the government is expected to be spending still
I think above thirty one percent of GDP on government expenditure.
(05:04):
Now that's higher than it was sort of pre pendemic.
So even though we're going to get out of that
sort of pandemic era and out of the high inflation era,
we're still going to see this period where we're still
spending quite a bunch of money.
Speaker 4 (05:16):
So there are some very difficult.
Speaker 3 (05:17):
Options, and I feel like part of the challenge at
the moment is that you've got on one side people saying,
you know, we should be, you know, spending more as
a government. And of course, you know, the government is
disappointing that group of people by not spending quite as much,
but it's also disappointing other people on the other side
saying we should cut spending a lot more. And so
I feel like the government's sort of in a pretty
difficult zone in the middle trying to disappoint everyone all
(05:40):
at once.
Speaker 2 (05:41):
What about trying to get big numbers off the benefits.
I'm talking big numbers. I mean, we've got nearly two
hundred thousand people on benefits, So if we got that
down to one hundred, dropped that by half, would that fix?
Speaker 3 (05:50):
It would certainly help? And of course that's important sort
of more broadly, and you know, not only from a
fiscal cost, but because having people often ifiting it into
jobs is important.
Speaker 4 (06:02):
I mean that is.
Speaker 3 (06:03):
Tricky of course, when the unemployment rate is going out,
there are far fewer job opportunities over time. But again
as that spending starts to come around and back into
the economy next year, we expect a bit more hiring
that starts to come through. One difficulty though that we have,
excuse me, we've seen in the economic and benefit numbers
more recently is that yes, there are more people on
(06:25):
the benefit but increasingly quite a driver of that has
been people who are going on to what we call
the job seeker Support, Health Conditions and Disability subgroup, and
that's often for people who have often they're reporting sort
of mental health challenges and similar at the moment, so
I think we've got a real challenge across the country
at the moment where you know, some of those health
(06:48):
challenges and the fact that people do really struggle to
find an appointment with a mental health professional and.
Speaker 4 (06:53):
Similar that actually is affecting how much they're ready to
get into a job and whether or not they can
start looking.
Speaker 3 (06:59):
So again, I think we've got some pretty fundamental issues
we need to look at. I would, however, also highlight
that at the moment you Zealand is the biggest part
of our spending and the biggest growth that we're seeing
is coming from the New Zealand New Zealand Superannuation. And
we're now spending more on New Zealand Super than we
are on education as a country, and about seven times
more on superannuation than we are on defense. So we've
(07:23):
got some big questions I think to be asked around
some of that social spending and the fact that we
haven't and we seem unwilling to adjust something like the
New Zealand Super age because it's costing us.
Speaker 2 (07:32):
Do you reckon it's the age or means testing.
Speaker 4 (07:36):
I think it might be parts of both.
Speaker 3 (07:37):
I mean, I think the age bit is sensible, given
that back in the nineties when we last at the age,
people are spending a certain proportion of their lifetime on
New Zealand Super and they're now spending longer than that.
And I think, you know, we're seeing people that are
working longer anyway, But maybe we do need to look
at something like means testing, but probably more fundamentally than that.
Speaker 4 (07:57):
If we're moving away from a.
Speaker 3 (07:58):
Purely universal system, which we possibly do need to, I
think that's time to have a whole overhaul of it
and sort of go what is the purpose of New
Zealand Super? Is it just to pay people a bunch
of money because they're now past retirement age. Is it
to top up a certain amount of income so that
people in their retirement have a certain.
Speaker 4 (08:16):
Quality of life?
Speaker 3 (08:17):
Because we haven't actually talked about this sort of stuff
for a couple of decades, and we seem to just go, well,
because I've paid my.
Speaker 4 (08:22):
Taxes before, I'm a title to it. Now.
Speaker 3 (08:25):
If we have that mentality, over the next twenty or
so years, we're going.
Speaker 4 (08:28):
To find a whole bunch.
Speaker 3 (08:29):
Of people that move out of the workforce under retirement,
and a whole bunch of people who are lack of
people who are moving into the workforce because we're not
having as many kids. That equation becomes very unbalanced very quickly.
Speaker 2 (08:40):
Right, what are you doing for Christmas? We've done the
heavy stuff. Now you've done the heavy living thing. What
are you doing for Christmas? What do you got to
look forward to?
Speaker 3 (08:46):
Look, I'm still working up until the twenty fourths is
lots of economic numbers we want to try and get
through so that we're ready for whatever comes in twenty
twenty five. But then I'll be heading out to some
friends over in the Wided Upper for Christmas and then heading.
Speaker 4 (08:59):
Up to Great Barrier Island to do a hike.
Speaker 3 (09:02):
With some friends over New Year's It'll be the first
time I've ever put on tramping peck, So hopefully we'll
talk in in the New Year, but otherwise I might
need a little bit of time to recover after that.
Speaker 2 (09:12):
Good on you, Good on you, and thank you for
everything you've done for our show this year and our station.
You have been amazing, amazing voice of sensibility, Brad Olton.
Have a merry Christmas. Thank you.
Speaker 4 (09:22):
Same to you.
Speaker 1 (09:23):
For more from Wellington Mornings with Nick Mills. Listen live
to news Talks It'd Be Wellington from nine am weekdays,
or follow the podcast on iHeartRadio.
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