Economists rate the Budget

3.45 pm

Economists polled by Reuters following the announcement the afternoon of the Government's 2001 Budget, forecast on average an operating profit of NZ$1.0 billion in the 2000/01, rising to NZ$1.8 billion in the 2001/02 year.

Adrian Orr, chief economist at WestpacTrust, says "it's a good budget in the sense that it's predictable, there's no surprises. I think the financial markets will be comfortable with what they see."

"The forecast numbers look very credible, they've played with a straight bat there. A pretty soggy year this year, picking up into next year. Perhaps if anything, there may be a surprise on the upside, they're very down on domestic spending, residential investment and that might pick up a bit quicker and with it tax revenues."

Mr Orr believes the business community will welcome the Budget's emphasis on innovation, education, and human capital.

David Drage, senior economist at ANZ Investment Bank, says the Budget was largely in line with what would have been expected, although the bond tender programme was "a bit bigger than was expected."

"The issues we had coming into the budget still exist," he said.

"There are downside risks to the fiscal numbers. There's also clearly risks to the government's economic forecasts which underpin the fiscal numbers, particularly given the V-shaped recovery that's implicitly built into the forecasts."

"There's also clearly risk to the spending profile going into an election year next year. While the government may have some NZ$800 million to spend then, now that the fiscal spending cap has been breached it does reduce the Minister of Finance's credibility somewhat in trying to enforce the tight spending controls on his colleagues."

Mr Drage says much of the cash going into the proposed super fund is matched by increases in gross debt issuance.

"So, if you like, the market is providing the cash to go into the super fund. It does foreshadow that we're likely to see large bond tender programmes in the future."

- REUTERS

www.nzherald.co.nz/budget

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