The Budget is expected to be delivered next week
Economists are expecting next week’s Budget to show “smaller forecast fiscal deficits” given how well the New Zealand economy has held up, and ASB senior economist Mark Smith said it will likely confirm that we have “weathered the COVID-19 storm much better than envisaged a year ago.”
Smith said that longer-term challenges will also remain, but that we can no longer expect a “throwing the kitchen sink at it” approach of Budget 2020 - instead, the government is likely to instil “targeted and fiscally prudent” messages.
“We expect Budget 2021 to show smaller fiscal deficits, a lower peak in Crown debt and a trimmed bond issuance programme,” Smith said.
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“With the worst of the COVID-19 crisis arguably behind us and the New Zealand economy showing considerable resilience, there would be the temptation for the Government to deliver a more business-as-usual Budget.”
“However, with the pandemic still raging in many parts of the world and with the New Zealand economy not firing on all cylinders, the urgency to move the books back into surplus can wait until the government is confident that the economic expansion is entrenched,” he explained.
“We do, however, expect that the Budget will seek to place fiscal settings onto a sounder medium-term trajectory.”
Smith said he expects that public debt has risen rapidly, and the government bond programme is likely to be trimmed by up to $40 billion over the 2021 - 2025 period.
He noted that Finance Minister Grant Robertson’s key objectives for the Budget are to keep New Zealand safe from COVID-19, accelerate its economic recovery, and address the issues of housing affordability, climate change and child wellbeing.
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“The Government has done well in minimising the healthcare and economic toll of COVID-19, and our COVID-19 healthcare response has been close to (or at) global best practice,” Smith said.
“However, the Government’s track record on meeting other policy objectives has been decidedly mixed. There has been little progress in boosting economy-wide productivity, addressing bottlenecks in transport and improving housing affordability.
“Furthermore, longer-term fiscal challenges posed by climate change and the ageing population loom, and preparations need to be made. Better co-ordination between government departments and reconnecting with key trading partners are steps in the right direction.”
