VIEW: BNZ Sees Tight Budget As A Necessity

BNZ notes that the NZ government has a structural budget deficit and so the budget handed down on Thursday will need to be tight out of necessity. It is not expecting major economic forecast revisions after they were changed significantly at the half year review.

• “With its new net-debt measure, and 30% of GDP ceiling that applies to it, the government has effectively enlarged its scope to borrow by approximately 25% of GDP, or close to $100b (compared to the old 20% target, and the previous net-debt measure). But that it’s already more than halfway into that extra allowance.”
• “Net pressure on the bond programme seems to us upward. This relates to the weak trajectory on the underlying operating balance, more than the fiscal costs from the early- 2023 storms (which have heavy infrastructure elements and will be spread out over many years).”
• “The HYEFU embodied a view of fiscal stimulus waning gradually over the coming years. The RBNZ will be sensitive to any (more) government policy announcements that will frustrate or stall that process, as the Bank battles to knock the stuffing out of inflation.”