“Rather, there will be less demand from Government, and more from the private sector,” he said.
BNZ head of research Stephen Toplis noted National’s promise to get the books under control faster than the current government.
“We doubt that the incoming government will find it particularly easy to achieve its fiscal objectives,” he said. “The economic cycle will be unhelpful, we are not convinced revenue will be as easy to come by as assumed, and it will be difficult to cut fiscal expenditure as anticipated. We would have said the same had Labour retained the government benches albeit that the detail might be a tad different.”
In a section headed “same sized milk-shake, different flavour,” ANZ’s Workman crunches the numbers on fiscal outlook.
Based on the costings provided by National and noting that Treasury’s estimates could end up a bit different in December’s Half-Year Update, there was “perhaps a smidgen more stimulus under National’s fiscal plan than meets the eye,” he said.
But it was very small in the scheme of things.
Over the four years to June 2028, National’s numbers indicated tax relief would cost a total of $14.6 billion. That was about 0.7-0.8 per cent of GDP per year, which was relatively small compared with the 1.4 per cent increase in government spending announced in Budget 2023.
A healthy chunk of that relief (income tax indexation, FamilyBoost etc) would go straight to households, he said.
“Struggling households are likely to spend 100 per cent of the income gain (adding to aggregate demand and CPI inflation pressures), while other households might save some or all of it.”
Government spending would be cut to help pay for this, which would reduce the impact on aggregate demand and inflation pressure.
“When it comes to government spending, the composition is important. For convenience, and given the degree of uncertainty around estimating fiscal multipliers, we assume that every $1 in tax relief that is offset by $1 in reduced spending is neutral from an aggregate demand perspective,” he said. “You can poke holes in this assumption, but in big - picture terms, this is well within rounding error territory.”
Policy changes might deliver more change via the housing market, Workman noted, although even that would be marginal.
National plans to loosen the ban on foreign buyers, reinstate interest deductibility on rental properties, and reduce the Bright Line test period from 10 to 2 years.
“Qualitatively, this is one-way traffic: it’ll add to housing demand and therefore prices,” he said. “But quantifying this is very difficult on top of what’s already a very uncertain outlook.”
ANZ had previously done work suggesting recent restrictive Labour’s policy changes, had detracted as much as three percentage points from house price inflation.
On the monetary policy front, National’s policy plans to to chop the maximum sustainable employment’ target’ out of the RBNZ’s mandate, would make little practical difference, he said.
The wording - supporting maximum sustainable employment - already offered the RBNZ “plenty of wiggle room.
“In practice, the forecast of inflation pressures, whether expressed via the ‘output gap’ or via the deviation of employment from its sustainable level, are more or less the same thing. Getting the labour market where it needs to be has always been the inflation - fighting strategy,” he said.
“We very much doubt that the inclusion of that consideration in the remit has materially impacted any monetary policy decisions. And while changes here (or similarly, to the housing - related additions) will impact the RBNZ’s communications strategy, we don’t see it influencing policy decisions.”
The change in government would make the RBNZ nervous simply because it too no longer knows the detail of what lies ahead, said BNZ’s Toplis.
But he didn’t see proposed changes to policy remit making any practical difference.
“We doubt, however, that there is anything in the election night outcome that would see it raise rates in November,” he said.
