As is general practice now, before elections, Treasury opens the country’s books to all parties and the public so party policy can be based around reality. Here’s a quick summary from our friends at ANZ…
- Treasury’s latest forecasts did not contain much by way of surprises. The growth profile is broadly similar to the Budget forecasts, as is the expectation of a return to surplus by 2014/15.
- The battleground to achieve a surplus by that date will be fought on two levels. First, whether real GDP growth can average 2.9 percent over the next five years as Treasury forecasts. Historically, this has been easy to achieve, but more questionable in a deleveraging and bumpy global environment. The earthquake rebuild will add to growth, but if supply-side capacity is not what it was, then this impetus will displace growth in other sectors. Second, whether sustained government spending restraint can be achieved in an ongoing manner. Further restraint in some areas will get into diminishing returns.
- These suggest a return to surplus could potentially be delayed by a year. In the overall scheme of things, we do not think this matters much with the spirit of fiscal austerity more critical.
- No matter who wins the election, all political parties are in a fiscal straitjacket for the next five years.
- We see greater coordination between fiscal policy and monetary policy over the coming years, which will assist the RBNZ in keeping interest rates lower than would otherwise be the case.