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VIEW: BNZ Not Expecting “Any Meaningful” Surplus

NEW ZEALAND
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NZ’s government will present its first budget on Thursday May 30. It promised tax cuts in the election but has been clear that it has found spending reductions to maintain fiscal responsibility. The timing of both will be important to the RBNZ. BNZ notes that both structural and cyclical pressures make it difficult for the government.

  • “The government is at pains to say that its policy mix is fiscally neutral and, hence, not inflationary but this does not mean the central bank will be neutral in its incorporation of the Budget into its analysis as both the so-far-excluded tax cuts and the revenue shortfall have not yet been embedded into its numbers.”
  • “The HYEFU forecast deficit for fiscal 2024 was 2.2% of GDP and we think that economic pressures on revenue means it is more likely to end up at least a billion dollars higher when all is said and done. This being the case it is also likely that fiscal 2025’s deficit will be a bare minimum of 2.5% of GDP.”
  • “We doubt any meaningful surplus can be achieved within the fiscal horizon, which will run to 2028, especially seeing that the minister has said it will take several years to get the books back into balance.”
  • “Larger near-term deficits seem to be expected by the market. It is always difficult to gauge deficit and bond programme quantum, given the many moving parts, but the risks seem tilted to the upside.”
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NZ’s government will present its first budget on Thursday May 30. It promised tax cuts in the election but has been clear that it has found spending reductions to maintain fiscal responsibility. The timing of both will be important to the RBNZ. BNZ notes that both structural and cyclical pressures make it difficult for the government.

  • “The government is at pains to say that its policy mix is fiscally neutral and, hence, not inflationary but this does not mean the central bank will be neutral in its incorporation of the Budget into its analysis as both the so-far-excluded tax cuts and the revenue shortfall have not yet been embedded into its numbers.”
  • “The HYEFU forecast deficit for fiscal 2024 was 2.2% of GDP and we think that economic pressures on revenue means it is more likely to end up at least a billion dollars higher when all is said and done. This being the case it is also likely that fiscal 2025’s deficit will be a bare minimum of 2.5% of GDP.”
  • “We doubt any meaningful surplus can be achieved within the fiscal horizon, which will run to 2028, especially seeing that the minister has said it will take several years to get the books back into balance.”
  • “Larger near-term deficits seem to be expected by the market. It is always difficult to gauge deficit and bond programme quantum, given the many moving parts, but the risks seem tilted to the upside.”