Fiscal Tightening Expected In NZ, May Budget To Clarify Australia’s Stance

After the April release of the IMF’s Fiscal Monitor, MNI has published a Macro Deep Dive on the projected global tightening. In terms of Australia-NZ, NZ’s fiscal position is not as robust as Australia’s with both Treasuries forecasting a 2pp difference in the budget deficit for the current financial year. The IMF’s forecasts in the April Fiscal Monitor are consistent with this. There is considerable uncertainty regarding the fiscal outlook in both countries, as budgets will be announced on May 14 for Australia and May 30 for NZ.

• NZ had a change of government last October from Labour to a centre-right coalition, which has promised tax cuts to be financed through spending reductions. This will be their first budget. Whereas in Australia, the current government faces elections in around a year and so this is likely to be their last budget before then. In terms of the general government balance, both countries are also facing a weak economic outlook, which will weigh on revenues, and higher interest rates which boost interest payments on debt.
• The IMF’s cyclically adjusted primary balance gives a good indication of the fiscal stance. It shows NZ’s deficit shrinking to 2.5% of GDP this year and then to 1.1% in 2025, consistent with the idea that the new government will be more focused on fiscal consolidation.
• Australia’s is expected to move from balance to -0.2% of GDP in 2024, a slight easing of policy, but then the IMF has it in balance again in 2025. There seem downside risks to this forecast, as 2025 is an election year and the Treasurer has said the focus will shift from inflation to growth. The stance should become clearer after the May budget.