14 Dec 2009

Improving economy likely to push up growth forecasts

9:09 am on 14 December 2009

An improving economy will push up the Government's forecasts of future growth, though economists say it will be some time before that is fully reflected in the Crown's coffers.

The Treasury's December Economic and Fiscal Update is out on Tuesday, as is the 2010 Budget Policy Statement, which will set out the Government's broad priorities for next year's budget.

In May's Budget, the Treasury forecast the economy to contract 1.7% in the year to March 2010, before growing from 2011.

Since then, the global economy has improved, as has activity in New Zealand, underpinned by surging dairy prices, a stronger housing market and rising confidence.

Nevertheless, Finance Minister Bill English is promising to keep a tight rein on spending.

ANZ Bank senior economist Khoon Goh says the lingering effects of the downturn on firms' profits has ravaged the expected tax take.

He believes the Treasury's economic growth forecast will be revised upwards, given the recent improvement in the economy.

However, Mr Goh says he expects the Treasury to downgrade tax revenues in the short term because less corporate tax has been being paid as a result of the recession and its effects are likely to linger in terms of the tax take.

He says there will be deterioration in the fiscal position in the near term.

Mr Goh says he expects higher borrowing this year, but the rest of the borrowing programme to remain similar to that flagged at this year's Budget.