VIEW: ASB Sees Downside Risks To Fiscal Position

The NZ government reiterated its commitment to tax cuts across income levels in its Budget Policy Statement but doesn’t expect a surplus now until 2028. It is also “trying to get better value out of Crown spending”. ASB sees the risks to the downside, as the “Government’s balancing act” is a “delicate one, at a time when the economy is under pressure”.

• “The HYEFU forecasts did not have the Operating Balance before Gains and Losses (OBEGAL) getting back into surplus until the June 2027 year, and even then the surplus was a microscopic $100mn. Now the Government is aiming for a surplus in the June 2028 year.”
• “The economic backdrop looks set to be weaker than assumed back in December’s Half Year Update. That will impact on future growth in the tax base. The Crown accounts had held up reasonably well through to January, although the tax take was slipping slightly behind forecast.”
• “May’s Budget will reflect an environment of weaker revenue conditions (putting tax cuts aside) and possibly some added welfare spending if unemployment is expected to be higher than previously thought.”
• “There is still a lot of number crunching to do between now and when the Budget is released on May 30th. However, there are some clear challenges for the Government in delivering on the tax cuts it has committed to while getting the Crown accounts back into surplus in an acceptable timeframe and meeting other spending priorities. Much will depend on how successful the Government is in finding cost savings amongst existing Crown spending.”