VIEW: ASB Warns Budget Needs To Be Contractionary For Rate Cuts

ASB expects the first surplus to be delayed when the budget is announced on Thursday May 30. It seems sceptical that spending cuts will offset the promised tax cuts. It also warns that if fiscal policy isn’t contractionary near term, then rate cuts could be pushed back further.

• “The return to an OBEGAL (Operating Balance before Gains and Losses) surplus will still be earmarked, but is unlikely to be reached until 2027/28, the end of the published forecast horizon and a year later than the HYEFU projections.”
• “The profile for net core Crown debt is expected to be higher and is unlikely to fall below 40% of GDP by the end of the projection period. Gross government bond issuance over the 2024/28 period is expected to be $10-15bn higher than projected in the HYEFU.”
• “Cuts to taxes and spending will be presented as being both fiscally and economically neutral. However, this depends on a number of factors and the timing of when both measures are introduced will be an important consideration. The introduction of a tax cut package before spending cuts are instigated would not be helpful for the RBNZ.”