Moody's: New Zealand's 2017 budget highlights fiscal flexibility and shock absorption capacity

Moody's Investors Service says that New Zealand's (Aaa stable) budget for the fiscal year ending June 2018 (2017 budget) demonstrates very strong public finances, underpinned by ongoing fiscal discipline and robust economic growth prospects, providing the government with significant fiscal flexibility to buffer potential shocks.

Ahead of the September election, Moody's expects the broad consensus on fiscal discipline, regardless of the party in power, will continue to deliver on the goals of maintaining budget surpluses and reducing debt in the coming years, a credit positive commitment.

Moody's conclusions are contained in its in-depth report "Government of New Zealand: 2017 Budget Highlights Fiscal Flexibility, Credit-Positive Commitment to Increasing Surpluses and Reducing Debt".

In its budget, the government maintains its commitment to increasing fiscal surpluses, which Moody's expects will help reduce gross government debt towards 28% of GDP by 2018, significantly lower than the median for Aaa-rated sovereigns.

The government's track record of fiscal prudence affords it significant fiscal policy flexibility, such that it can fund spending on new measures like the Family Incomes Package while maintaining fiscal surpluses.

Additionally, the government's commitment to resuming contributions to the Superannuation Fund in the fiscal year ending June 2021 (FY 2020-21) will help limit the future fiscal burden from an aging population and support public finances in the longer run.

Finally, the increase in the Earthquake Commission levy will help rebuild the depleted Natural Disaster Fund and boost the sovereign's ability to counter disaster-related shocks.

Moody's expects robust population growth, strong Asian demand for New Zealand dairy, tourism and education and solid investment spending to support real GDP growth of around 3.0% in 2017 and 2018, broadly consistent with the government's projections.

New Zealand will be among the fastest growing Aaa-rated economies in coming years, says Moody's. The government's robust fiscal position and prospects for it to strengthen provide ample room to pursue expansionary fiscal policy to buffer the economy against potential future shocks.