Steven Joyce is going to be proved right. There is a fiscal hole and a softening economy is making it wider.
I don’t like the term fiscal hole. Good policy should dominate over strict debt targets and economic cycles come and go which are often beyond government control.
But the Labour-led Government’s fiscal hole is looking deeper by the day – and bigger than the $11.7 billion of additional borrowing that Joyce identified.
Growth is weaker, the Government is already borrowing creatively to the tune of $6.4 billion via Crown entities (keeping it out of core government net debt metrics) and spending demands are headed one way.
That combination will pressure its fiscal position.
So what has changed:
Before the election there was broad agreement from economists, myself included, that there was no fiscal hole in the Labour’s fiscal plan.
The lack of money left in the kitty post the 2018-Budget raised issues of credibility, but the fiscal parameters were technically achievable.
It wasn’t going to be easy, but it was possible, so the Government was given the benefit of the doubt.
But the picture is changing and the Government’s ambitions are looking more and more like pipe dreams.
The assumptions were heroic. If economic growth was massive, then Labour might have made it. But now chickens are coming home to roost.