Our Labour team wanted to understand why every year under National the budget deficit has far exceeded the forecast when they took office. In the graph below, the black line is the projection of the deficit made in December 2008, at the height of the global financial crisis. But you can see the actual deficits have been much larger.
Part of this is due to National’s tax cuts, even accepting the rosy predictions English made about the cost of his tax packages, they still cost a significant amount (green blocks). This year the deficit has been worsened by one-off events in the form of the Christchurch earthquake and the South Canterbury Finance bailout (brown and purple blocks). But there’s still a huge difference between the 2008 projections and what happened that isn’t accounted for by the one-offs or the borrowing for tax cuts. What’s behind that?
When we look at the GDP growth forecasts vs reality for the same period, the answer becomes clear. Every year, National has projected that a return to strong growth is just around the corner which will mean more tax take, lower benefit costs – and a smaller deficit. But it hasn’t eventuated. Instead, the economy has stagnated under National and every year National has evened up having to slap billions more on the taxpayers’ bill to cover for this economic underperformance (blue block).
No doubt today’s budget will also contain rosy growth projections. Will the reality end up being more deficit blowouts?