Download Gill and De Raad

IPS & IPANZ Seminar
The 2009 Budget and
Macroeconomic Outlook
Jean-Pierre De Raad (NZIER) &
Derek Gill (IPS)
2 June 2009
Part 1 – Comments on Budget 2009
•
•
•
•
Macroeconomic Context
NZ Macroeconomic Outlook
Fiscal Strategy & Outlook
Emergent Strategy?
Part 2- Macro Impact of Fiscal Stimulus
Macro Context –’Horns of a
dilemma’
• “the global economy is experiencing the deepest most synchronised
recession since the 1930s” (2009 Budget ES P1)
• Consensus Trading Partner Growth Forecast (2009-11 Calendar
AAPC) –2.5%,+1%, +2.2%
• Perfect Storm – Inventory Cycle, Credit Crunch, Asset Price falls
• Sharpest Real Economy/ inventory cycle since the 1930s e.g. Q1
2009 first (non war) fall world trade volumes, Japanese exports fell
26% and RGDP 15.2% (apc).
• Financial Crises trigger prolonged recessions – output 9% fall over 2
years, 35% fall in house prices over 6 years (Reinhart & Rogoff:
2009: AER P&P)
• Stock Market Crashes (+25%) go with 30% chance of major
recessions (10%+ falls in RGDP) and 11% chance of depression
(25%+ fall in RGDP)
(Barro: 2009: NBER WP 14760)
NZ Macro Outlook- ‘Between a
rock and a hard place’
Annual average % change
7
Forecasts
6
5
4
3
2
1
0
-1
-2
-3
-4
Mar-97
Mar-99
Mar-01
Mar-03
Mar-05
Mar-07
Mar-09
Quarterly
Upside scenario
Main forecast
Downside scenario
Mar-11
Mar-13
NZ Macro Outlook- ‘Between a
rock and a hard place’
• Comparison with other forecasts
RGDP
Forecasts
11 Other
Forecasters
2009
2010
2011
2012
Average
(ex-Treasury)
-0.8
-0.7
2.9
3.2
-0.9
-1.7
1.8
2.9
Treasury
Minimum
(ex-Treasury)
-1.3
-2.3
1.8
2.2
Maximum
(ex-Treasury)
-0.1
1.1
4.8
3.9
How does the current recession
compare with previous recessions?
101
100
Mar 88
99
Sep 97
98
I
n
d
e
x
Sep 82
Mar 67
97
current
Mar 91
96
Sep 76
95
94
93
0
1
2
3
4
Quarters
5
6
7
Fiscal Strategy & Outlook –
Balancing the short & medium term?
$ billion
80
75
Actual
70
Forecast
65
60
55
50
45
40
35
30
2000
2002
2004
2006
2008
June Years
Budget 2008 Revenue
Budget 2009 Revenue
Budget 2008 Expenses
Budget 2009 Expenses
2010
2012
Fiscal Strategy & Outlook –
Balancing the short & medium term?
• Revised Long term debt objective (new net debt
peaks at 40% GDP aimed at 30% 2020s)
• Cf 20% Gross Debt ratio & NZSF (2008 Budget P48)
• Reduce future operating allowances increases
to $1.1b. from 2010 (from $1.4b in 2009, $1.7
previously)
• Delay 2010 & 2011 tax cuts
• Suspend NZS contributions until surpluses
Trends in the key fiscal aggregates
(%GDP)
• Core Revenues stable around 32%
despite tax cuts
• Core Current Spending increase from 32%
(2008) to nearly 37% (2010-2012)
• Operating Balance (ex NZSF, accy + /-)
• +3% (2008) -5% (2010-2133)
• Large deterioration in new net core debt
from +6% in 2008 to 2013 :
Central -30.9 Rosy -22.5% Gloomy -50%
Trends in Sector Shares (%NGDP)
• Where is 5% growth in core spending in 2008/10
–
–
–
–
–
Social Welfare – 2% ($1.7b in 2010 only)
Health - 1% ($1.0b in 2010 only)
Education – 0.8% ($0.3b 2010 only )
Law & Order – 0.5% ($0.15b 2010 only)
Other – eg Defence – 0.2% ($0.1b 2010 only )
• Nominal GDP broadly flat – 2008 – 2011
• How will a 1.7% increase ($1.1b) be managed in 2011?
• How will long term trend growth in the big four be
managed?
Emergent Strategy?
• Task forces on Tax, Infrastructure, Electricity etc.
• “Predictable, pragmatic, if unexciting”
• Budget emphasised infrastructure spending and
sustaining income support, health and (non
tertiary) education, law and order
What will second term issues be:
• NZ Super – 66% at 65?
• Improving system performance eg health
• Gloomy or Rosy Scenario?
Macro impacts of the fiscal
stimulus
IPS/NZIPA lunchtime seminar
2 June 2009
Supporting jobs one of three
objectives in budget
Employment & Unemployment
Forecasts
12
4
10
2
8
0
6
-2
4
-4
Employment Growth, LHS
2
Unemployment Rate, RHS
-6
1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Source: Statistics NZ, NZIER
0
% of labour force
Annual % change
6
$10b fiscal stimulus package pre
budget 09
• fiscal impulse indicator of 5.4% of GDP
$b
3.5
Infrastructure
3.0
2.5
Business Tax Cuts
Personal Tax Cuts
2.0
1.5
1.0
0.5
0.0
2009
2010
2011
2012
Sagging income puts dent in tax
revenues
Real GDP Per Capita
37000
Real GDP per capita, annualised
Forecasts
Annualised real GDP/capita
35000
1992-2008 trend
33000
31000
29000
27000
25000
23000
21000
1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Source: Statistics NZ, NZIER
Tax rises & spending cuts to curb
rising debt
Fiscal stimulus supports jobs
% deviation from base case
0.8
Real GDP
0.6
Employment
Capital stock
0.4
0.2
0.0
-0.2
2007
2010
2013
2016
2019
2022
But it has to be paid back
% deviation from base case
4.0
Real GDP
3.0
Real private consumption
Real public consumption
2.0
1.0
0.0
-1.0
2007
2010
2013
2016
2019
2022
Stimulus does not help external
imbalance
Current Account
6
Forecasts
4
% of GDP (annual)
2
0
-2
-4
-6
-8
-10
Goods & Services Trade
Net income
Current Account
-12
1988
1992
1996
Source: Statistics NZ, NZIER
2000
2004
2008
2012