NZ PREFU 2017: Projected growth is a tad softer - ANZ
The 2017 Pre-election Economic and Fiscal Update mirrors the 2017 Budget: rising surpluses (but a neutral cash position) and a declining debt profile (as a % of GDP; roughly unchanged in $ terms) and are market-friendly numbers that show responsible fiscal management, explains Cameron Bagrie, Chief Economist at ANZ.
Key Quotes
“Projected growth is a tad softer than it was in the May Budget, but similar in spirit. Momentum is expected to accelerate in 2018/19 towards 4%, in part underpinned by the 2017 Budget Families package. That acceleration looks a little optimistic to us, given that the economy is butting up against capacity constraints, but we agree with the spirit of the Treasury’s economic assessment; there is good momentum across the economy.”
“The fiscal numbers are better for 2016/17, but a tad weaker than Budget in the out-years. This reflects a lower profile for nominal GDP and expectations that the boost in tax revenue in 2016/17 won’t be sustained.”
“The changes relative to the Budget look to be ‘margin of excellence’ tweaks. The operating surplus rises to 2.3% of GDP compared to 2.4% previously forecast. Net debt declines to 18.8% of GDP compared to 19.3%.”
“The bond tender programme is unchanged from the Budget: $8 billion in 2016/17 and $7 billion over 2017/18 to 2019/20. As announced in the Budget, a new 20 April 2029 nominal bond will launched before the end of calendar 2017, and the NZDMO plans to repurchase up to $5 billion of 15 March 2019 nominal bonds.”
“The forecasts have stuck with the assumed provisions for further initiatives of $1.7-$1.8 billion in each upcoming Budget. Net new capital spending is projected to be around $6 billion per year, of which $1.5 billion has yet to be allocated. That leaves the fiscal stance broadly unchanged relative to the Budget; fiscal policy is expansionary in 2017/18 and 2018/19 but broadly neutral over the forecast horizon.”
“The lolly jar looks pretty full on two levels. New initiative allowances are baked into the forecasts (as has been the convention), and projected rising surpluses and a declining profile for debt provides another layer of choice.”
“However, the lolly jar is not as full as perhaps was expected leading into the PREFU. Hopes were that there could be an additional $1-2 billion p.a. floating around; a lower nominal GDP track has removed that. Residual cash is zero, so anything above what is factored into the current forecasts will need to be borrowed (or financed by tax initiatives). There is no free lunch.”
“Attention will now turn to the various political parties, their policy prescriptions, and how they make the numbers add up. The incumbents are flagging the possibility of a second family incomes package, but not until 2020, when the residual cash position is positive.”
“The message from today’s update of the fiscal accounts is that the (pending) Government has some wiggle room for options to be canvassed in regards to lowering taxes, increasing spending, boosting investment further, or paying down more debt to build up the rainy day coffers. Having the accounts modestly in the black provides greater choice. There is not huge wiggle room though; we’ve seen projected surpluses disappear fast when the business cycle turns, and statistically we are “due” for such a turn within Treasury’s forecast horizon.”