NZ at top of IMF shock chart

Finance Mininster Bill English. Photo / Paul Estcourt

New Zealand is among a group of five advanced economies whose Government finances have the most capacity to deal with unexpected shocks, according to a study by International Monetary Fund economists.

The others are Australia, Denmark, Norway and South Korea.

The study is based on the idea of "fiscal space" which is the gap between a country's current level of public debt and a limit, beyond which it would face runaway growth in its debt which no level of Government surplus could rein in.

The calculations allow for differences in the way countries have dealt with fiscal challenges in the past, as well as the prospect of weaker growth and higher interest rates, and the fact that as fiscal indicators deteriorate the markets impose ever higher risk premiums on their interest rates.

Those with least fiscal space are Greece, Italy, Portugal and Japan.

"Next are Iceland, Ireland and Spain, where the probability that these countries have at least some additional fiscal space is about 50 to 70 per cent," the IMF staff note said.

"For the United States and United Kingdom the probability of any remaining fiscal space is 70 to 80 per cent."

New Zealand, Australia, Denmark, Norway and Korea are the countries where the probability of additional fiscal room to manoeuvre is highest.

Finance Minister Bill English said the report confirmed Government measures to control debt had left New Zealand well placed compared with other developed countries.

They included capping new Budget operating allowances at $1.1 billion, reprioritising $3.8 billion of lower quality spending into frontline services, capping the bureaucracy, deferring contributions to the Cullen Fund until there are sufficient surpluses to resume payments and replacing promised tax cuts with a package of fiscally neutral tax changes which begins on October 1.

The IMF projects average public debt levels across the advanced economies to rise from an average 58 per cent of GDP in 2007 to 86 per cent by 2015.

In New Zealand's case the increase is from 17 to 36 per cent.