Infometrics chief executive and principal economist Brad Olsen. Photo / Tania Whyte
Infometrics chief executive and principal economist Brad Olsen. Photo / Tania Whyte
One economist’s immediate thought on Budget 2023 is that it could see a further rise in the Official Cash Rate.
Finance Minister Grant Robertson has released his sixth Budget today, with a focus on childcare, public housing and public transport, as well as rebuilding after Cyclone Gabrielle.
Speaking to href="https://www.iheart.com/podcast/1049-on-the-tiles-86725722/?follow=true" target="_blank">On the Tiles, the NZ Herald’s politics podcast, live from the Budget lockup earlier today, Infometrics chief executive and principal economist Brad Olsen told Thomas Coughlan said that there is a big funding gap starting to emerge.
“You’re still seeing the government spend $9.4 billion more than they’d expected back in December last year over the next four years. At the same time, they’re able to take in $11 billion less in terms of revenue. That’s a $20 billion gap that’s starting to open up.
“I guess the worry is certainly when it comes to the government, they’re having to borrow more, all of that is coming at time when interest rates are higher, and the risk really is with those gaps, you might well have this government budget being more inflationary than we’d first thought.”
Asked if this could lead to Westpac’s prediction that the Reserve Bank will raise the Official Cash Rate to 6 per cent, Olsen said that is a possibility.
“Certainly having read the budget, my thought would be that there is more risk for that - the Reserve Bank has to do more work on the official cash rate info. Infometrics was already at 5.75 per cent, we’ve been there for a while, we’ve stuck our necks out a little bit further than most of the trading banks.
“Now, the rising risk is not only with these fiscal levels of spending that’s going on, but also the high level of migration that’s coming forward. Treasury says that, on net, they are expecting that the additional level of migration is set to be expansionary and add to more demand.”
