BNZ Weekly Overview - Budget

Welcome to the May 28 2009 issue of the BNZ Weekly Overview.

BNZ Weekly Overview

Mission Statement

To help Kiwi businesspeople and householders make informed financial decisions by discussing the economy and its implications in a language they can understand.

In this week’s issue….

Budget Day 1 Housing Market Update 6

Economic Developments 2 FX - Foreign Economies 7

Interest Rates 4

The Weekly Overview is written by Tony Alexander. The views expressed are my own and do not purport to represent the views of the BNZ. To receive the Weekly Overview each Thursday night email me at tony.alexander@bnz.co.nz with ‘Subscribe” in the Subject line.

Budget Day

By the time anyone gets to read this week’s edition of the WO there will be literally thousands of pages of information about the 2009 Budget already on the internet. So there seems little point in doing anything other than running through some of the high level stuff and noting the main implications. To whit

This is the first Budget in a long time which has not contained a list of handouts to all and sundry. In that regard it will be of little interest to most people and that is probably a good thing because quite frankly, the more people look toward the government to use someone’s else money to solve their perceived problems and the economy’s difficulties the further removed we truly are from the solution. One of these solutions of course would be Kiwis saving money for their health, education and retirement needs and at least running a positive savings rate rather than one of the worst rates of dissaving in the OECD.

But such moaning aside, this year’s Budget is largely an accounting exercise aimed at avoiding a credit rating downgrade. It has achieved that and more with Standard and Poors taking the government’s rating off negative watch. h the government projecting the ratio of net debt to GDP will rise to reach about 36% in 2016/17 then start very slowly declining. This improvement compared with projections of steady deterioration in the absence of new measures has been achieved by reining in some of the massive spending growth put in place by the previous three governments.

The tax cuts planned for 2010 and 2011 have essentially been cancelled. New spending announcements have been very small. Contributions to the NZ Superannuation Fund have been suspended for ten years to avoid pressuring debt markets even further.

The fiscal projections contained in the Budget look reasonable, though the fact no fiscal surplus is projected for about ten years is a source of concern and something which will require further addressing – probably through further cutting of wasteful programmes. Having said that, the economic projections look a tad too weak beyond this March year so scope exists for some extra improvement further out – or announcement of a tax cut ahead of the 2011 election!

The Budget is not significant enough in either a restraining or boosting direction to have any noticeable impact on interest rates or the exchange rate.

BNZ Weekly Overview (pdf)

ENDS

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