Budget 2023: Finance expert says ‘deteriorating’ Budget will put pressure on interest rates

A finance expert has described the newly announced Budget as “deteriorating” and has a strong chance of putting pressure on inflation and interest rates.

JMI Wealth director Andrew Kelleher said yesterday’s big announcement had offered up some positive initiatives that would help many families - including the early childhood boost and the scrapping of the $5 prescription fee.

But the Budget had also offered some surprises, he said.

Speaking to Newstalk ZB’s Mike Hosking this morning, Kelleher pointed out that this was Finance Minister Grant Robertson’s sixth Budget.

“This is my 37th Budget. I’ve been doing this for 37 years. I think I can be objective about Budgets - this is my objective response,” he said.

“This Budget has produced a deteriorating fiscal position and I think the deterioration is quite material: $4.8 billion of extra spending a year.”

Kelleher said if he looked at the operating balances over the forecast period - compared to the half-year fiscal update - we were worse off just over $27.5b over that forecast period.

“Twenty seven-and-a-half billion dollars - much larger than an expected increase in the borrowing programme; expectations where the bond programme would increase by roughly $10b.

“The actual increase is double that. It’s increased by $20b...we’re going to have to sell $34b worth of Government debt.”

Robertson also spoke with Hosking this morning and said he did not agree that New Zealand’s spending is up.

Housing Minister Megan Woods, Finance Minister Grant Robertson and Prime Minister Chris Hipkins on their way into the House for the reading of the Budget 2023. Photo / Mark Mitchell

The minister said 79 per cent of the new spending will be on cost pressures.

“So yes - there is spending on here. But the Government has to do [that] to keep public services going. But I think the cost of living stuff is pretty modest and pretty practical.”

Asked if the Government spending would have an effect on the inflationary period, Robertson pointed out that what they did was not the only thing that was happening in the economy.

“I also think the balance is a little bit more there and bit more here [and] actually doesn’t add enormously to inflationary pressures when you are looking at a whole economy that’s affected by global forces and other things that affect demand.”

He also pointed out that these were “four-year numbers” and that some of the planned initiatives - including $300m on early childhood - did not kick in until next year, for example.

Kelleher said one thing that has “flown under the radar” in yesterday’s released Budget was that the short-dated debt, the Treasury bills, that programme has increased to $9b per year - substantially more than previously expected.

“The return to surplus is pushed out a year. That surplus is wafer thin and there’s considerable risk around actually achieving it. There’s an extremely high risk that this Budget is inflationary,” he said.

“It stimulates the economy and makes the job of the [Reserve Bank of NZ] harder.”

Kelleher described it as a “stimulatory Budget” that was optimistic but had a very strong chance of putting upward pressures on interest rates.

On the issue of the cash rate predicted to rise, Robertson went on to say that there were many factors at play in terms of inflation - such as the Cyclone Gabrielle recovery and rebuild, return of tourism and strong migration numbers.