Treasury’s upbeat productivity pickup challenged

In the half-yearly economic and fiscal update (HYEFU), productivity was picked to increase to 1.1% over the forecast period.
EY's David Snell: “I don’t see anything in these documents that would force me to lift that figure further. I would love to see it but the dots don’t quite join up for me.”

EY tax expert David Snell says the “dots don’t quite join up” when it comes to the Treasury’s productivity forecasts.

In the half-yearly economic and fiscal update (HYEFU), productivity was picked to increase 1.1% on average a year over the forecast period.

According to previous Treasury numbers, there has been no labour productivity growth at all over the past four years.

Mr Snell says although it would be great to see productivity increase like this, he does not think it’s likely to happen.

He says the scant productivity growth in the past five years was mainly driven by migration and people working longer hours.

"I think there are risks to the downside around the numbers that are presented here," he says.

“I don’t see anything in these documents that would force me to lift that figure further. I would love to see it but the dots don’t quite join up for me.”

Opposition leader Bill English says the economic numbers outlined by the Treasury show the “strength of the books the government inherited.”

Treasury secretary Gabriel Makhlouf is picking GDP growth to expand 2.9% a year on average over the next half-decade.

He is also picking unemployment to fall to 4% and the consumer price index to rise to 2%.

“It’s an economy in good shape – the government has no excuse for not kicking on and maintaining the strength of the economy.”

But Mr English and his finance spokesman, Steven Joyce, are critical of the government’s “fiscal wriggle room.”

Mr Joyce is also calling out the government for increasing debt.

He says the Treasury’s Pre-Election Fiscal Update had net Crown debt reducing to $56 billion by 2022 from $59 billion at the start of this financial year.

“After just seven weeks with Grant Robertson as finance minister, this has turned around to an expectation of net debt growing to $69 billion by 2020 despite significant growth in tax revenues.”

But, as a percentage of GDP, the government’s debt track is heading down and will be less than 20% of GDP by 2020.

The government had previously set itself a target of doing just that.

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