NZ exporters to benefit from recovery across the Tasman

By BRIAN FALLOW economics editor

Australian Treasurer Peter Costello's prediction that the Australian economy will recover from 2 per cent growth this financial year to 3.25 per cent next year is good news for New Zealand exporters.

Such a recovery for New Zealand's most important trading partner - viewed as credible by Australian market economists - reflects, among other things, an expected strong rebound in the housing sector.

The forecast - shared by New Zealand's Reserve Bank - assumes that the United States will enjoy a V-shaped recovery.

Australia's rebound will also owe much to a loosening of fiscal policy, not just in Tuesday's Budget but over the past six months.

Mr Costello predicts a cash surplus of $A1.5 billion ($1.84 billion) for the June 2002 year, down from the $A4.7 billion projected last November.

But that cash surplus includes a $A2.8 billion dividend (up from $A1.3 billion last year) from the Reserve Bank of Australia, which had a good year in the foreign exchange market.

Without this windfall, the cash surplus would have been a small deficit, as the accruals measure was.

Fiscal projections for the coming years have been even further reduced.

"Largely as a result of spending programmes and tax concessions announced since the later part of next year, the projected cash surplus for 2002/03 has been slashed from the $A7.6 billion projected only six months ago to $A1.1 billion in Tuesday's Budget," said John Edwards, HSBC's chief Australian economist.

"This is the critical number because it shows how much the Government and the Opposition can afford to promise in additional spending or tax cuts in an election campaign this year."

An austere post-election financial stocktake would be necessary next May.

Or as Deutsche Bank put it in a commentary: "There are no prizes in politics for leaving a pot of gold for your opponents to spend in government."