Fri, 04 Nov 2011 4:11p.m.
By Michael Wilson
They say beauty is in the eye of the beholder and there is nothing more beautiful than a bountiful budget forecast in election year.
Labour has just come out with a costing for its elections promises to show John and the public it’s on track for a budget surplus of $497 million in the 2014/15 financial year – the same year as National. The precision is remarkable. Not $500 million or $450 million, but four hundred and eighty seven, exactly.
The reality is this forecast and National’s each have a strong coating of fantasy. New Zealand’s GDP is worth around $200 billion annually. To get things wrong by just a per cent or two, either way, means budget forecasts can suddenly appear horribly misguided.
The pre election fiscal updates, PREFU, show Government revenue in 2012/13 is forecast to be around $65 billion, expenses $71 billion. With the world economy in a state of bewilderment (what are those Greeks doing?), there is every chance these figures could be significantly out.
If Europe sorts out its problems and the world economy starts to kick on then the revenue figure could be a lot higher as companies and individuals pay more tax on their earnings. But if the other more likely scenario that Europe and the US struggle on for some time, then those forecasts could seem way too positive. And we only need to be a few per cent out for a deficit to balloon upwards by a billion or more, no matter who is the government.
So are there likely to be holes in the Labour figures? Undoubtedly, just as there will be in National’s. And each side will be able to find inconsistencies in the other’s costings. So has National conveniently overlooked the fact that the SOEs it sells down will mean a loss of dividend stream from those big power companies?
And has Labour ignored the fact that borrowing $6 billion to finance the Cullen Fund is a pretty hairy thing to do when the world markets are in a state of turmoil. Sure that money will be buying assets, but as J. Key esquire has pointed out those assets could easily tumble in value if the Great Financial Crisis comes back to haunt us again. And those wretched rating agencies will probably view more borrowing by NZ Inc in much the same light as they view Berlusconi’s “bunga bunga” budgets.
There are going to be weaknesses in all attempts to fashion a realistic budget and borrowing programme in these exceptionally turbulent times. And being an old school journalist I feel it is not wise to express my own political prejudices by saying one is superior to the other, when an election is just a few weeks away.
So who has the best financial plan – National or Labour? I’ll leave it up to your own prejudices and caution that like a Hollywood fantasy, the coating of gloss on a Jolie or a Kidman, means the beauty contest is as much about make-up artists as it is the figures.