Finance Minister Grant Robertson. Picture/NZ Herald.
Finance Minister Grant Robertson. Picture/NZ Herald.
Finance Minister Grant Robertson faces the prospect of a cooling economy when he releases his first mini-budget on Thursday.
Data already out shows the government will be in a strong fiscal position, but bank economists say it may face constraints if the economy comes off the boil.
Robertson has already outlined that he intends to run a conservative ship, from a debt perspective, but economists said much will depend on how the economy performs over the term.
"The overall fiscal position of the country will likely look very solid, particularly compared with many other parts of the world, although interest rate and currency markets will react to anything substantially different to current expectations," said Craigs Investment Partners head of private wealth Mark Lister.
The half year economic and fiscal update normally attracts little attention but this time around, the costs of the government's 100-day plan will be included.
At the same time, the budget policy statement will outline the Government's priorities for the 2018 budget and show the level of operating and capital allowances for ensuing budgets.
ASB economist Nathan Penny said housing, spending, migration and construction data, and a weather-affected agricultural sector, all pointed to a slowing of the economy.
"The risk is that a slowdown could translate into less tax revenue than was anticipated at the last fiscal update," Penny said.
ASB's estimates have the operating surplus averaging 1 per cent of GDP over the five-year period.
"Nonetheless, the new Government is likely to sail closer to the fiscal wind," the bank said.
"For example, we expect the operating surplus forecast as a percentage of GDP to be flat over [the] period."
ASB said Thursday's announcement is expected to show a strong Government balance sheet.
"We project that, along with achieving its operating surplus target, the Government will also be on track to deliver its net debt target," he said.
"Specifically, we expect net debt to reach 20 per cent GDP by 2021/22," it said.
ASB says Thursday's announcement is expected to show a strong Government balance sheet. Picture / Mark Mitchell
ANZ said the update would continue to portray a reasonably positive outlook for the fiscal accounts.
The message will be that there is room to accommodate the government's promises "even if projected surpluses are slightly smaller and debt levels modestly higher than previous Treasury forecasts".
The key question though would be how much "wriggle room" there would be if things don't go as expected.
"We suspect there won't be much, highlighting the risks of some future slippage, and tighter Budgets for 2019 and beyond," ANZ said.
At face value, the "broad spirit" of the numbers will look good.
"New Zealand's fiscal accounts will still be strong relative to many international peers, and that should not be discounted.
"However, a lot hinges on the economy continuing to perform well," it said.
"Given our more circumspect views on the growth outlook, risks to costs that are really pointed only one way, and the realities of keeping coalition partners happy, there is not a lot of room to manoeuvre if things don't go entirely to plan.
"It sets the scene for some fiscal slippage, forcing the Government to either ease back on its fiscal targets or look at reprioritising some of its spending plans," ANZ said.
"We suspect it will focus on the latter, which means after what is likely to be a boomer of a 2018 Budget, things could get tighter from Budgets 2019 and beyond."
