NZ Government Budget 2001/02
Data Flash (New Zealand)
NZ Government Budget 2001/02
Treasury projections show that, compared to the Government's December Fiscal Update, the aggregate bond programme over the next four years has been revised up by more than $5 billion - a magnitude far above market expectations.
A bond tender programme of $3,500 million has been announced for the next fiscal year (12 tenders, no index bonds) - similar to this year's programme, but around $500m above market expectations.
Part of the higher-than-expected borrowing over coming years (around $1.2 billion) relates to debt refinancing, as Housing NZ and health sector debt will be brought back on the government's balance sheet.
The remaining upward revision to the borrowing projections, which is reflected in an increase in the projections for net public debt, arises from weaker operating surpluses, higher capital expenditure and broadly unchanged contributions to the Government's new superannuation fund.
Instead of a stable net public debt track, Treasury projections now show an increase from currently $20.4 billion to $24.3 billion in 2005 (net debt remains stable as a proportion of GDP). That implies that the Government intends to borrow a large portion of the Government's contribution to the new superannuation fund.
Super fund contributions of $600m, $1,200m, $1,800m and $2,500m are planned for the next four years respectively.
The estimated operating surplus for 2000/01 (June year) is $640m (0.6% of GDP). However, the underlying surplus is around $1 billion higher at around 1.5% of GDP, considering the negative impact of non-cash influences on the official figure (primarily the adverse effect of the revaluation of unfunded government liabilities regarding accident insurance and civil service pensions).
Surplus projections for coming years have been revised down significantly, due to the lift of the Government's self-imposed spending cap by $270 million, the effect of a weaker near-term GDP growth profile, as well as an expected weakening in company taxes after over-payments this year.
For 2001/02 a surplus of $1.4 billion (1.2% of GDP) is projected, lifting to $2.4 billion (2.0%) and $3.0 billion (2.4%) over subsequent years. Combining the next four years, aggregate surpluses have been revised down by around $2.5 billion.
Fiscal initiatives included in this Budget (tax treatment of R&D spending, industry development, social services, etc had largely been pre-announced. The forecast for GDP growth has been revised down to 2.6% for the coming year (previously 3.7%), in line with weaker global growth. Average growth of around 3% is projected for subsequent years.
The RBNZ is assumed to re-tighten policy in 2002 (lifting the OCR to around 6.5%) as a result of strengthening growth and a firm labour market (unemployment rate to stay around 5%). Inflation is forecast to average 1.5% over coming years.
Market reaction: There was very little reaction from the foreign exchange or equity markets. However, the debt market sold off, especially at the long end, as the market contemplated how it would absorb the unanticipated bond supply.
The Funding Programme
The Debt Management Office (DMO) announced a total domestic Government debt programme for 2000/01 of $3,500m, similar to this year's programme, but around $500m larger than expected by the market.
The programme consists of 12 nominal bond tenders.
No inflation indexed bonds will be issued in 2001/02.
Regular Treasury bills will continue to be issued in the same volume and maturities.
The DMO will continue to be active in the NZ dollar swap market when the Crown can achieve cost savings on its domestic and foreign borrowing. The table below summarises the 2000/01 domestic borrowing programme.
The dates of the twelve tenders that make up the financing programme are set out below.
Schoefisch, Chief Economist
Darren Gibbs, Senior Economist
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