The 2018 Budget showed a strong commitment to fiscal responsibility as was to be expected.

The fiscal numbers are market friendly; rising surpluses and declining net debt (as a share of GDP).

Note that the Government has bumped up borrowing through Crown entities (from 0.5 to 2.2 per cent of GDP). If it wasn't for this transfer the 20 per cent debt target would have been missed, not that I think that would be an issue.

Treasury's growth numbers look on the high side to me.


I'm not sure enough work has been done on the near-term impact or growth costs of transforming the economy and the economy is hitting capacity constraints too.

I think growth will average a tad below 3 per cent which is slightly below Treasury but not materially so on the assumption we don't get caught up in an offshore economic accident (which is a real risk when I look at the likes of Argentina and some emerging market economies).

The New Zealand economy has good momentum, but I do ponder how easy it will be for the economy and resources to transition.

Beyond the direct hit the agriculture and non-renewable sectors are taking, the economy has historically had big impetus provided by rising house and land prices which have fuelled spending.

Of course, surging house prices have also contributed to inequality.

Those sources of growth are disappearing, and they are non-trivial holes to fill.

A hat tip to the Government for the Budget documents themselves and particularly the Summary of Initiatives document.

It adds more transparency and the documents are also an easy way to understand where the money is going.


The fiscal stance is expansionary by around 1 per cent of GDP in each of 2018 and 2019 and contractionary the years after.

It's a profile that won't put too much pressure on the RBNZ to lift rates.

Though spending pressures look to be headed one way and there will be pressure for the fiscal stance to loosen in upcoming Budgets.

A solid economic outlook and strong fiscal position provides the Government options to invest and address social deficiencies.

The 2019 Budget signalled a strong commitment to be responsible, not just fiscally, but socially and environmentally. All jolly good stuff.

The key focal points and broad spirit are admirable.

We need strong investment in health, education and housing, which the Government views as critical public services that have been underfunded.

How much of the funding will go into providing more services (volume) as opposed to absorbed on the cost front through wages is unclear.

We also need to be acting on child poverty and homelessness and enhancing and protect natural resources.

Have we been under-investing?

Central Government gross fixed capital formation (investment adjusted for asset sales) has averaged 2.6 per cent of GDP since 1999; the average has been the same under both Governments.

So, we can't really say one or other government has been under-investing or not.

Investment projects straddle the election cycle as they can be multi-year jobs.

This all misses the point anyway. Investment quality should dominate the investment quantity.

A lot of the issues regarding the Government's portfolio of assets likely reflects how they are managed.

The Government intends to broaden the scope and definitions by which progress is measured.

Traditional measures such as economic growth will remain important.

However, the 2019 Budget will be a Wellbeing Budget, which will report progress against a raft of measures that highlight the well-being of New Zealanders, the environment and communities. What exactly that looks like remains uncertain.

We face clear challenges regarding child poverty and prioritising that is welcome.

However, we also already know that New Zealand looks good on several levels of well-being.

The OECD notes that New Zealand "substantially outperforms most other OECD countries on social connections, health status and overall environmental quality.

High living standards are also reflected in a superior subjective measure of well-being.

They are underpinned by robust institutions, good governance, generally best-practice policy settings, a stable macroeconomy and a high-quality education system."

So New Zealand looks better than most on a range well-being measures.

We can always do better of course, and we shouldn't downplay weakness in some areas.

New Zealand underperforms the OECD on household disposable income and wealth. GDP per capita is below the OECD average.

GDP per capita has grown in line with other nations over the past decade.

The challenge is to close the gap.

It also means we need to be mindful that money needs to be coming in the door before redistributive and social aims can be met.

The two go hand in hand. The income generating side needs more attention.

This requires proactive policies to support growth.

The research and development tax incentive are a hugely positive move.

As are the ring-fencing of property losses and work associated with the tax review.

We need better incentives to drive growth within the real economy. Boosts to capital spending is timely as is seed capital for a more "green" economy.

Hopefully the Future of Work Commission comes out with some proactive recommendations.

However, the Budget doesn't really provide a lot on the growth front. Only $130 million of the much-heralded regional growth fund has been allocated.

We seem to be re-writing the rule-book on what promotes economic development too going by some of the initiatives that are being put under that category.

Was there a clear plan elicited on how the economy is going to be transformed? Or how to lift productivity? Not really.

And on that basis, it's hard to see what is going to turn business sentiment around which is being weighed down by uncertainty.

Business sentiment is not a great indicator anyway.

However, the longer it remains weak, the greater the risk much needed private sector investment across the economy is cancelled or put on hold.

- Cameron Bagrie is the managing director and chief economist of Bagrie Economics.