The Council of Trade Unions economist believes the Treasury's forecasts on economic growth are too optimistic, and the Government should leave itself more spending room in case the recovery remains anemic.
In the half-year Economic and Fiscal Update, subdued household spending and business investment cut growth projections from 3.2% to 2.2% in the March 2011 year.
The Treasury is now forecasting a $15.6 billion cash deficit, up from the $13.3 billion deficit forecast at the time of the May Budget, requiring more Government borrowing to fund it.
The weak recovery has upset the Government's borrowing plans, with estimated tax losses reducing the amount of corporate tax it expected to collect by about $350 million a year.
It now will need to borrow an extra $10.5 billion over the next four years.
Government pledges to continue belt-tightening met with approval from the business community.
However Business Roundtable executive director Roger Kerr says the Government needs to make some hard decisions about reducing the structural deficit at some stage.
And he says spending should be further reduced to avoid a downgrade of the country's credit rating, which could push up interest rates.
While there are calls to eliminate interest-free student loans, raise the retirement age and cut Working for Families, the Council of Trade Unions economist Bill Rosenberg says the Government is already cutting spending.
Mr Rosenberg says new spending of $1.1 billion a year now includes unexpected demand and cost pressures, such as funding for early childhood education and Kiwisaver expenses, meaning less room for other spending.
He says the Treasury's forecasts for growth appear too optimistic, with unemployment expected to be 5.2% percent in 2012, and below 5% in following years.
He says the Government needs to leave itself room to support these people if unemployment remains stubbornly high.
