NZ Budget: Prudence, promises and pragmatism - ANZ

Analysts at ANZ explain that as expected, the NZ Government’s first Budget emphasised prudence over promises as operating surpluses are projected to grow and net core Crown debt to fall below 20% of GDP by 2022 – 19.1%, in fact.

Key Quotes

“Underpinning this outlook is another upbeat set of nominal GDP growth projections. That said, the real activity outlook has been downgraded to be more in line with our own view.”

“Both revenues and expenses are higher, with OBEGAL surpluses little changed. On the opex side, health and education gobbled up most of the cash available, as they tend to do. Meanwhile, core Crown tax revenues got a $5.7bn cumulative bump, owing to persistence in the stronger starting point, policy tweaks and a stronger nominal GDP outlook.”

“On the funding side, NZDMO’s bond issuance guidance has been lifted by $1bn to $8bn in the 2019, 2020 and 2021 fiscal years, while 2018 and 2022 are unchanged at $7bn. Over the five years to June 2022, total bonds issued are expected to be $38bn compared to $35bn at the Half Year Update. However, two thirds of the increase is owing to a reduction in short-term funding through Treasury bills. In terms of off-balance sheet funding, there was little to report, which we view as a good thing.”

“The fiscal stance is a little more expansionary than previously forecast, with the core Crown fiscal impulse averaging 0.4% of GDP over the next five years, compared to 0.1% forecast in the Half Year Update. Overall, we think this change is immaterial for monetary policy.”

“All up, we think there was headroom for a little more spending on infrastructure in this Budget, given the significant deficit in this area resulting from years of strong population growth and underspending. This will no doubt be debated anew next year. But prudence is the order of the day, taking precedence over promises. And given how quickly the world can change, it is hard to take a firm line that this is a mistake.”