Moody's views on the New Zealand budget 2017

Moody's views on the New Zealand budget 2017

New Zealand is rated Aaa with a stable outlook by Moody’s.

· The government’s projections for increasing fiscal surpluses in the medium term highlights its ongoing commitment to preserving strong public finances. We expect growing fiscal surpluses to help reduce gross government debt toward 28% of GDP by 2018, significantly lower than the median for Aaa-rated sovereigns.

· The economy’s strong growth reinforces robust public finances. Consistent with the government's projections, we expect robust population growth, strong Asian demand for dairy, tourism and education and solid investment spending to support real GDP growth of around 3.0% through 2017 and 2018, above the Aaa median of 2.0%.

· The government’s ability to fund spending on new measures such as the family and income tax package and maintain fiscal surpluses is the result of significant fiscal policy flexibility gained from consistent fiscal prudence.

· The increase in the levy paid by insured homeowners to the Earthquake Commission will help rebuild the Natural Disaster Fund and boost the sovereign’s ability to counter negative shocks.

· The government’s commitment to resume contributions to the Superannuation Fund in 2020/21, when net debt falls below 20% of GDP, and lift to the retirement age, will help limit the future fiscal burden from an aging population and support public finances in the long term.

· Ahead of the September election, we expect the broad consensus on fiscal discipline, regardless of the party in power, will continue to deliver on the goals of maintaining budget surpluses and reducing debt over the medium term.

· Overall, the government’s strong fiscal position, and prospects for that to strengthen, provides it room to pursue expansionary fiscal policy to buffer the economy from any potential future shocks.

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