Even after one of the biggest stimulus packages ever seen in this country, New Zealand will retain "ample" spending capacity without compromising its fiscal strength, ratings agency Moody's says.

In a note covering New Zealand's plan, and a relatively smaller package announced by Australia a week earlier, analysts at Moody's said while debt would climb and tax revenues would be below previous expectations, both sovereigns would be strong.

"We do not view this near-term budgetary expansion by both sovereigns as significantly threatening their fiscal strength," Moody's said.

READ MORE:
Coronavirus explainer: How demand for cash is distorting NZ short term funding markets
Coronavirus financial package: A massive, economy-wide wage subsidy shows how serious the situation is
Reserve Bank of NZ steps in to support markets but no bond buying yet
Brian Fallow: Reserve Bank, Government coronavirus moves will ease the plunge

Advertisement

"Indeed, it highlights the flexibility and capacity that both governments possess to utilise fiscal policy to support their credit profiles amid an increasingly difficult global economic environment. Particularly for New Zealand, fiscal surpluses and debt levels below A-rated peers provide ample fiscal flexibility."

New Zealand and Australia are among a group of countries which Moody's rates as A, its top-tier. The statements suggest, even after the spending raised New Zealand's debt as part of the spending, that rating is not under threat.

On Tuesday, Finance Minister Grant Robertson announced a $12.1 billion spending package, about half of which will be spent by the end of June, mainly made up of a $5.1b wage subsidy.

The package includes business tax changes, targeting small businesses and commercial property owners as well as increased welfare payments.

All up, the spending is equivalent to about 4 per cent of New Zealand's gross domestic product.

Earlier, Australia announced a A$17.6b ($17.8b) package aimed at cushioning its economy from the fallout of Covid-19, about 1 per cent of Australia's economic input.

Both governments have said more steps are likely to be taken amid concerns the global economy will slow sharply.

Moody's said the "measures highlight the strong institutional capacity of both New Zealand and Australia to develop emergency fiscal responses during an unprecedented global shock".

Advertisement

Earlier, Moody's said measures announced in New Zealand this week, including the stimulus package and a slashing of the official cash rate by the Reserve Bank, would soften the impact of the expected economic downturn on the banking sector.

"While the banks are exposed to weaker asset quality and earnings, as well as ongoing volatility in funding markets, credit profiles remain robust and the banks are in a much stronger position heading into this downturn than during previous crises."