Prefu: The numbers and nasty surprises behind the pre-election forecast

Author: John Weekes,
Publish Date: Tue, 12 Sep 2023, 11:50AM

The esoteric world of Treasury number-crunching will have its time in the sun, or Wellington drizzle, today.

How hefty or depleted the public purse is will be revealed at the pre-election economic and fiscal update (Prefu) from 1pm.

Numbers to watch out for

Former Finance Minister David Caygill said the public might consider keeping their eyes on one key indicator.

“What I will look for in the Prefu is: How is our net debt looking ... how much debt are we carrying relative to our GDP? Not private debt, because that’s spread over all of the economy, but public debt held by government on behalf of taxpayers.”

Caygill served as Finance Minister in the late 1980s during the Fourth Labour Government. National had a nasty surprise when it took over in 1990 and found the BNZ on the brink of collapse and needing a government bailout.

What is Prefu good for?

Former Prime Minister Jim Bolger said public statements from his predecessor Mike Moore spawned the need for Prefu.

“He said on many, many, many occasions the budget was balanced, it was in surplus, which was totally false. There was no surplus. There was a huge deficit,” Bolger told the Herald this morning.

“It’s useful to the extent that it avoids a situation which did occur in 1990. The incoming National government was surprised to discover the state of the BNZ,” Caygill added.

Former Finance Minister David Caygill says Prefu has its uses - but not many for parties which have already made election promises. Photo / Mark Mitchell

“It isn’t as useful as perhaps people expect, as by the time the Prefu comes out, almost all the financial commitments have been made by political parties. It’s far too late to change your policy settings.”

Last time, shortly before the 2020 election, Treasury was way off with some Prefu predictions.

It expected unemployment to peak at 7.8 per cent in the March 2022 quarter. In fact it was just 3.2 per cent, and the country was on the brink of a major worker shortage.

Caygill said Treasury was more likely to be on the ball with shorter-term forecasts.

“The further out you go, the less meaningful the figures are,” he added.

What do markets care about?

ANZ chief economist Sharon Zollner said with Prefu, financial markets were most interested in bond programmes.

New Zealand Debt Management (NZDM) is part of the Treasury, and oversees government borrowing requirements.

If governments won’t get more tax revenue, and don’t want to cut spending, then they borrow.

ANZ expected NZDM to need $10 billion more in bond issuance.

Every time Government debt is issued, the people who buy that have to be repaid, with interest.

All the Prefu documents are expected to be published shortly after 1pm.

John Weekes is online business editor. He has covered courts, politics, crime and consumer affairs. He rejoined the Herald in 2020, previously working at Stuff and News Corp Australia.