Gabriel Makhlouf says the Government should stick to its fiscal strategy, despite falling dairy prices and rising global turmoil.
Calls for a loosening of the fiscal belt cut no ice with Treasury Secretary Gabriel Makhlouf.
With dairy prices still falling, concerns about China and Greece mounting, and domestic sentiment indicators heading south, the ANZ Bank's chief economist, Cameron Bagrie, has argued for a shift to an easier fiscal stance by the Government, in order to supplement the monetary easing under way.
Faced with a decline to below-trend economic growth why not think about bringing forward the tax cuts planned for 2017 to next year, he asked.
But Makhlouf considers such talk premature. "The Treasury never rules any options out. But as things are at the moment the fundamentals are fine," he told the Weekend Herald.
We don't see any reason to go to the minister today and say you have got to change your fiscal strategy. Events around the world may push us in that direction but we are not seeing that now.
When the Treasury was putting together its half-year forecasts this December it would make an assessment about what to say about the fiscal stance, Makhlouf said.
"I would be very surprised if we changed our focus on reducing net debt to 20 per cent of GDP by 2020."
The Government has used its balance sheet - running deficits and running up debt - in response to the global financial crisis and the Christchurch earthquakes. "But we are not in that territory."
The Treasury has argued for a return to surplus and bending the debt trajectory (relative to the size of the economy) down, in order to rebuild the capacity to respond to such shocks - an argument Prime Minister John Key reiterated on Monday.
The decline in dairy prices would put some heavily indebted farmers under stress, Makhlouf said. But he was struck when visiting last month's Fieldays how little doom and gloom he encountered.
"What I got was a lot of people saying they understood they were in a cycle.
"They understood maybe prices were not going back to the absolute peak they had been at but they did see them coming back," he said.
"So the challenge was how to get through the next year or two. And many of them said their banks were taking the same attitude."
In any case the economy was not just one big dairy farm.
Other sectors such as tourism and construction, were doing well, Makhlouf said. The net inflow of migrants was another positive factor.
And although the overall outlook had weakened since the Treasury prepared its Budget forecasts, monetary conditions had eased in response. Interest rates were falling - "We will see where the governor takes us" - and the exchange rate had declined markedly.
Makhlouf spoke to the Weekend Herald before leaving with Finance Minister Bill English for China.
He may be less sanguine on his return about the potential spillover from the "turbulence" on the Chinese stock exchanges to the real economy and in turn to New Zealand's trade.
"China is still growing. Its growth has been falling every year for the past four years and yet we have still managed to sell lots of stuff to them," he said.
While dairy exports in the year ended May were down 20 per cent on the year before, they were still 8 per cent higher than in the year to May 2013.
"So 2014 was an exceptional year."
On Greece Makhlouf is watchful rather than worried. "To the extent we need to be concerned it is really that we don't know how the markets will react," he said. "We should care if it leads to general disruption in the financial system and it impacts on our ability to access funding. We don't think it will."
The eurozone had taken action to strengthen itself compared with where it was three years ago.
But while the immediate risks of financial instability were lower this time, a "Grexit" from the euro area could have longer-term implications by suggesting countries under pressure could leave the single currency.
It could be seen as changing its character to a fixed exchange rate mechanism, which could invite speculative attack in the future.
"Those sorts of implications for the longer term are worrying and why they would rather have Greece in the eurozone," Makhlouf said.
"A thriving European market is good for New Zealand and to the extent this destabilises that or acts as a drag on growth it will have implications."