Economic Weekly: Keeping the taps on trickle in Budget 21

The NZ 2021 Budget (Thursday 20th May, 2pm) takes centre stage this week.  NZ has dealt with the COVID-19 pandemic relatively well and our economic performance has held up remarkably as a result.  Compared to the chaos and dire economic forecasts which formed the backdrop for the 2020 Budget, the 2021 Budget should be comparatively straight forward.  Nonetheless, debt is up, owing to a lift in spending over the past year, while revenue has trended sideways.  As a result, the NZ Government has little wiggle room with spending decisions and will need to take a more considered targeted approach to this Budget, compared to last year’s ‘kitchen sink’ approach.

The global pandemic is not over yet, so there remains the expense of keeping borders closed and vaccinating the entire country free of charge this year.  Furthermore, the NZ economy is still in a fragile place and the Government needs to avoid weaning off fiscal support too soon.  To be working in harmony with monetary policy settings, fiscal settings also need to be stimulating the economy over 2021, rather than restraining it.  Finally, infrastructure is creaking at the seams as the population growth of recent years has placed pressure on everything including health, education and transport.

A detailed look at our forecasts for this week’s Budget is in a full note by Senior Economist Mark Smith (see here).  Compared to previous fiscal updates, the stronger economic backdrop means that annual deficits are expected to be smaller over the forecast horizon, and public debt is expected to rise less rapidly - and then fall away faster.  We forecast net core Crown debt will peak under 50% of GDP by 2023/23 and then drop back to 41% by 2025.  The Australians have a similar target in last week’s Budget, with Australian net debt forecast to peak at 40.9% in 2024. This places NZ and Australia in a relatively strong position compared to some of our international counter parts who have been hit harder by COVID-19, such as the UK and the US which are both forecast to see net debt rising to over 100% of GDP by 2025 (according to the IMF’s April World Economic Forecasts).

Financial markets will be more closely focused on the projected bond issuance programme, and we expect the NZ Government bond programme will be trimmed by up to $40bn over the next 4 years.  We expect issuance of around $20-25 billion per year over the next three years.

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Jane Turner

Senior Economist

Originally hailing from sunny Nelson, Jane moved to Auckland to join the ASB team in 2008.  As Senior Economist, Jane's main focus is co-ordinating the team’s macro-economic forecasts.  In this key role, Jane was thrilled by the team’s twice consecutive win of the Consensus Economics Forecast Accuracy award.   

During her decade-long career in economic forecasting, Jane has gained a thorough knowledge of the New Zealand economy.  Her current focus is on New Zealand GDP growth, including both manufacturing and the construction sectors.  She has spent time forecasting most sectors of the economy, including inflation, trade, housing, labour and financial markets.

Prior to joining ASB, Jane honed her macro-economic forecasting skills at the Reserve Bank of New Zealand.  Jane is a qualified scarfie, attending Otago University and graduating with a Bachelor of Commerce in Economics with 1st class honours.  In 2014, she took a career break from ASB to travel the world and learn to snowboard.

Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.

Mike Jones

Senior Economist

Mike joined ASB in 2019 armed with almost 15 years of experience in applied macroeconomic and financial markets analysis.

Mike's career has been all about distilling the risks and opportunities of economic and financial market trends for business. Basically asking the "what does it all mean" question. Mike's enthusiasm and skill for drawing out practical, commercial insights from the murky world of economics has been honed over a relatively broad base of experience.

After spending the early part of his career on the tools at the Reserve Banks of both NZ and Australia, Mike had a lengthy stint at BNZ where he was NZ’s top-ranked currency strategist. His regular and topical macro research also saw him pick up several FX forecast accuracy gongs from Bloomberg.

Drawn in by the prospect of putting strategy into practice, Mike moved from Wellington to Auckland in 2013 to join Fonterra as GM Treasury Risk Management. In this role, Mike lead Fonterra’s macroeconomic research output, and was responsible for the strategy and execution of Fonterra’s foreign exchange, debt, and interest rate hedging programmes.