VIEW: Westpac Doesn’t See Budget As RBNZ “Game Changer”

Westpac observes that the 2024 budget showed the fiscal position deteriorating over the forecast horizon but it doesn’t think it will worry the ratings agencies due to low debt and strong governance. It believes the RBNZ will see the increase in the fiscal impulse for FY25 as “unhelpful” but that it isn’t enough to be “a game changer” for the MPC.

• “A rough proxy of the impact of fiscal policy on aggregate demand can be obtained from the Treasury’s estimate of the Total Fiscal Impulse … The fiscal stance over the past year has been less expansionary than previously estimated, and the stance over the coming year – probably of greatest interest to the RBNZ given current domestic inflation pressures – is no longer estimated to be significantly tighter. The stance in ‘25/26 and subsequent years is now forecast to be slightly tighter than estimated in the HYEFU.”
• “Given larger operating deficits and capital requirements, forecast NZGB issuance over the next 4 years has been raised by $12bn, including a $38bn programme in the ‘24/25 year. Higher short-term borrowings fund the remaining shortfall.”
• “NZDM has raised the caps on nominal bond lines to $25bn from $18bn previously, and notes that it does not expect to offer buybacks of the April 2025 bond ahead of maturity.”
• “Personal income tax cuts – which were exactly as campaigned on ahead of the election – were the centrepiece of the Budget 2024 policy announcements.”
• “We think that sustained spending restraint may well prove more difficult than assumed in Budget 2024. As a result, attainment of an OBEGAL surplus in ‘27/28 is far from certain.”