S&P comfortable with Govt upping debt as economic growth eases; Economists see less need for OCR cuts; Construction sector wants detail on infrastructure spend so it can gear up; National unhappy with deficit forecast for 2020

S&P comfortable with Govt upping debt as economic growth eases; Economists see less need for OCR cuts; Construction sector wants detail on infrastructure spend so it can gear up; National unhappy with deficit forecast for 2020
Finance Minister Grant Robertson.

Here are some key responses to Treasury’s Half Year Economic and Fiscal Update (HYEFU) and the Government’s announcement it will invest an additional $12 billion in infrastructure projects over at least five years.

Details on what projects the money will be spent on are expected to be announced in 2020.

NZ’s credit rating unaffected

Standard and Poor’s Global Ratings says the additional government spending to occur as the New Zealand economy weakens won’t affect the country’s credit rating.

The ratings agency expects fiscal policy (government spending) and monetary policy (a lower Official Cash Rate) to contribute more to economic growth than in the past.

“New Zealand's net debt levels compare favourably with its similarly rated peers, and partially offset its very high external vulnerabilities,” S&P said.

“New Zealand's wealthy economy and strong institutional settings underpin our ratings.”

Fewer, if any more, OCR cuts needed

Kiwibank economists believe additional infrastructure spend will take some of the heat off the Reserve Bank (RBNZ) to stimulate the economy through OCR cuts.

Jeremy Couchman and Jarrod Kerr now only see the need for one, rather than two, cuts next year.

They have revised their OCR outlook in light of both more government spending and the RBNZ last week announcing less onerous bank capital requirements than proposed.

ANZ economists revised their OCR outlook straight after the bank capital announcement, and now also only see one more cut.

Meanwhile BNZ's head of research, Stephen Toplis, doesn’t see any further OCR cuts.

He said: “While you can’t say categorically that it [more infrastructure spending] will make the RBNZ more hawkish, you can say that it won’t in any way shape or form encourage it to cut rates.”

Fiscal stimulus still no game-changer

ASB senior rural economist, Nathan Penny, is of the view that fiscal policy is "only marginally supportive of economic activity" so "monetary policy is likely to continue to do most of the economic heavy lifting".

"The Government does have a (modest) fiscal challenge on its hands," he said. 

"Its fiscal headroom has shrunk materially since the May Budget as the economic outlook has deteriorated. 

"With the 2020 General Election rapidly approaching, and voter expectations rising, we anticipate that the Government may face some tough policy choices over the course of the year."

ANZ economists, Sharon Zollner and Miles Workman, said: "We don’t think this is a game changer for the year ahead - it’s more of a medium-term story.

"The fiscal impulse now averages zero over the forecast horizon, compared to -0.2 at the Budget Update."

Certainty needed to alleviate capacity constraints

Civil Contractors NZ, which represents 600 businesses in civil engineering, construction and contracting, is calling for details around the new $12b infrastructure spend.

The group’s CEO, Peter Silcock, said the longer it takes for project details to be announced, the more likely there will be capacity constraints.

Silcock said that as work on major projects like Transmission Gully, motorways in Canterbury and the Waikato Expressway finish up over the next 18 months, businesses will be looking to provide continuity of work for their employees.

“A year may seem like a long time, but in terms of making major infrastructure projects happen it is not long at all. The time for stalling is over and our members need to know which projects will be given the nod so they can start planning how they will put them into action,” Silcock said.

National: ‘Govt turning the surpluses it inherited into deficits’

The National Party’s main line of attack at the Government is for its management of the economy seeing Treasury forecast a $900m budget deficit in 2020.

“Treasury has slashed its economic growth forecasts which means fewer opportunities for Kiwis to get ahead, less money to go around and more debt,” National’s finance spokesperson, Paul Goldsmith, said.

“The Government has turned the strong growth and huge surpluses it inherited into deficits, weak growth and more debt with nothing to show for it.

“The Government is pulling the economy down with one hand through added costs, uncertainty and incompetence, and trying to pull it up with other through more debt. It’s confused, incoherent and chaotic…

“A National Government would restore confidence and revive our economy by getting on with infrastructure, by making it easier for businesses, large and small, to get on with it and by being disciplined and effective in Government.”

National hasn't put a figure on where it wants net Crown debt to GDP to be. 

It wants more roads and is open to introducing congestion charging to pay for them. The party will release a discussion document on its transport strategy on Monday. 

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33 Comments

Sounds like “getting on with it/get on with it” has tested well with the focus groups.

there, it was THAT easy, now get on the phone to WINZ and get those benefit levels raised, I'll vote for it. After that...If you really want to show how brave you are....RENT CONTROL.

I dare you, make a difference for those who need it and be remembered for that for ever, or are you too scared?

The truth is that many beneficiaries have legitimate problems that deter them from working. Although some abuse the system, the vast majority do not. I myself do not even know how they can survive on such low payments. I wouldn't mind an increase as I feel that society is better off when those at the bottom are given a helping hand up.

we're only as good as how our most vulnerable are treated...not a good look when Soyamun Bridges wants killer death 'Police' squads patrolling poor neighborhoods is it?

I agree... the police shouldn't have to deal with gun crime... too dangerous.

If I chose to have 8 kids and don't feel like working does that count me as "vulnerable" and I deserve higher benefits paid for by other hard-working net tax positive NZers and have the right to live in someone's property that they've worked hard for to purchase for much less rent in left winger's definition? Lemme ask you left wingers just out of curiosity, what do you personally do to help these so called "vulnerable" or is it just the usual case of "saying these things makes me feel superior but get someone else to do it/pay for it"? :D

How many of all those on the benefit do you think are actually folk who have pumped out 8 kids? Any numbers you have to support that? Or is it a case of stereotyping folk on benefits must help in making one feel justified in attacking them and the existence of a social welfare system.

The majority of our welfare benefit spending is on the pension, given out regardless of need. And we subsidise 300,000 rental properties, welfare into the pockets of landlords. It's absurd that we are funding benefits to property investors.

There's clearly a lot we need to fix.

wheres the evidence?

Rent control is a terrible policy though and has caused unintended side effects everywhere it's been tried.

Increase supply, make other investments more attractive, reduce demand. Don't add what is basically a price control on rents.

A lot of central banks seem to think government spending is required now interest rates don’t work
It ironic the the the Bankers get to advise the governments how to perform financially when their theories have already failed.

When the problem is over-whelming even sound monetary policy / economic theory stumbles. At least it is sound theory unlike lala land austerity rubbish which rapidly makes things even worse. Meanwhile one off fiscal stimulus projects are not inflationary, lets hope the spending is worthwhile and not "bridges to nowhere" which is my worry.

Fiscal prudence was a neoliberal Trojan horse. The government really made a mistake adopting it when they came to power.

its only so the state can be decommissioned in the name of low tax regime or a safe pair of hands...and the private sector can willingly take its place at 3 times the cost to users

I dont think they had a choice, they were un-electable without it however in-correct the theory is (in moderation).

I think the public knows they\re being stiffed by surpluses. Lots of info out there now for instance Steve Keen hammering the point that Govt defects should be moderate, perpetual, and counter cyclical with private debt growth. It was really the worst time to run a surplus. Around 2017 NZ suffered the greatest reduction in credit impulse since the GFC. That happened at the same time, and was probably caused by, a sharp reduction in Chinese capital flowing into the housing market. Someone on this site showed the sales volume decline, from memory, in Auckland of 5 billion dollars from 2018-2019. I'm surprised the economy hasn't imploded. By the way NZ has almost the lowest government debt to GDP ratio of all developed countries.

Lets see if they can get their act together ................ they have failed on everything else so far and have achieved absolutely nothing mentionable whatsoever

Kiwibuild ........................................Fail
Fix Infrastructure ............................Fail
Auckland congestion...................... Fail
Child Poverty ..................................Fail
Reduce immigration ........................Fail
Boost GDP ...................................... Fail
Oil and Gas ......................................Fail
Supporting farmers ..........................Fail
Improved healthcare..........................Fail
Improved education outcomes ..........Fail

12
up

But nor did her majesty’s current opposition
They were the last remains of globalisation and the trickle down theories of finance

NZF pork fund: $500k spent per job created (bet they don't last), and a strong smell wafting off the relationship between it and NZF donations.
Free fees for tertiary students: no increase in student numbers. Winston's big embassy spend up...
They have frittered away billions in low quality spending, wasted more on aborted kiwbuild, bumped up fuel taxes, hidden Billions in off-the-books borrowing at higher cost to maintain fiction of fiscal responsibility, and now want to borrow 10's of billions to make up for their wasteful ways.

When you inherit 9 years of fiscal diet that has severely damaged public services and then find 44% of the voters dont want that changed your ability to address much of the above is going to be difficult and limited. Oil and gas isnt a fail either, they acted correctly to address CC.

Just why do farmers need never ending support? they were stupid enough to take on too much debt let them fail.

Kiwibuild is a fail sure but then National were or will be no better.

Labour has delivered none of what they campaigned on, which they insisted they would be able to do without breaching the debt cap, and suddenly, here we are. A vauge announcement, the end of the debt cap and still no firm commitments to what they'll actually funds. But sure, nine long years or whatever tired crap-phrase you're using to avoid any scrutiny for a total failure to deliver on anything.

As for National, the SHAs were practically empire-building compared to Kiwibuild. Not the public service can deliver anything but higher wages to itself in an effective way. But there's always an excuse for non-delivery, isn't there? Maybe I should try not filing tax returns for years like Twyford dragged his feet on Auckland infrastructure and see how the IRD treats me.

"Just why do farmers need never ending support?"

Because they are a producer
Without support most producers would now be insolvent
Keep em fed and theres no rioting in the streets
Everyone is now on the nation's tit
Thats the way it has to be now
The free market collapsed in 08

Banks (soon to) need support, Construction/infrastructure companies need support, landlords need support (in accomodation supplements), all consumers need support, pensioners etc etc

The support shows itself in ever greater deficits to come by all nations...

Unbelievable how Nationals complaining about a projected one year deficit of around 0.3% of GDP (To put that in to perspective the USA is currently running a deficit of around 5% of GDP.)

Not just that, but National borrowed $70 billion during their tenure.

wasn't it National who cancelled the Family (old mom and dad in bad health and get free pension, healthcare on NZ taxpayer) members visa category scam in 2016 when they finally realised how stupid that policy was?

What's in the past with prior governments has happened, we only have one government now and no other government to compare it to.

Do you think given how this government is governing, its policy priorities, that you, your family, job and income are are best served by what they are doing.

Here is some background;
https://nypost.com/2019/12/08/reality-check-drive-for-rapid-net-zero-emi...

New Zealand is considering spending at least $5 trillion to ­deliver a physically unmeasurable impact (on temperature) by the end of the century.

Where does that 5 trillion come from? Not sure why you are quoting such an odd news article on what looks like an extreme right wing US web site but googling I cant find a source for that. Instead using a bit more reliable sources closer to home,

"A government-commissioned report by the respected New Zealand Institute of Economic Research (NZIER) shows that just reducing emissions to 50% of 1990 levels in 2050 would cost NZ$28 billion ($19.2 billion) annually by 2050. "

https://www.interest.co.nz/currencies/98488/because-honest-emissions-cut...

Now on the other side of the ledger is the costs of not doing so and that could be as bad as an extinction event, seems a bad idea for ppls offspring.

"National hasn't put a figure on where it wants net Crown debt to GDP to be."

Seems Opposition falling into line with the Government's fiscal planning.

It's not controversial that now is the time to spend.

Why should they, they are not governing.

We don't have duelling governments.

Are you sure national is "falling in line.... " or is this what you would like to see?

So what the CoL is doing is supposedly bad, but there is nothing to judge what the alternative is or what that would do to the economy. Seems a bit 2 faced that National spent significantly over the GFC to do nothing more than tread water at best and let say school and hospital infrastructure deteriorate significantly for 9 years. At the end of which show a meaningless surplus while porking the housing market to stupid heights, crippled the productive economy ie manufacturing and jobs and while bringing in record immigrants to squash wages. Yeah that 9 years went well, or maybe not.

It is a wee bit unbalanced, the ranting going on here.

People quickly forget National's infrastructural deficit, their attempts to cancel the Waterview tunnel, about face on the housing crisis etc. and carry on happily in their echo chambers.

I would like to see both major parties grow up and start acting in the best interest of NZ and not of themselves. If that's "falling into line" yes.

National doesn't want to tie one hand behind its back in a campaign against a party which was perfectly happy to bait and switch the electorate with totally undeliverable promises.

So you are happy in effect that National has a free hand to do anything it wants but dont want Labour to have the same freedom to deliver, yeah that is fair.....not.