Former PM Key’s departure creates uncertainties over New Zealand’s fiscal implications in lieu of next year’s national elections

The departure of former Prime Minister of New Zealand John Key has created uncertainties over the country’s fiscal implications, in lieu of next year’s national elections. Key has been replaced by Bill English after the Parliament unanimously elected the latter. English is scheduled to take office post-Christmas.

English was previously the Minister of Finance, so his elevation will require a reshuffling of other portfolios. For his previous role, English has nominated Stephen Joyce, who is currently the Associate Minister of Finance and the Minister of Economic Development among other duties.

The next year’s general election will decide directions that will shape the economic policy of the country. The 2017 election is expected to held no later than November 18, although the Prime Minister can choose an earlier date. In the past, the government has tended to dissolve Parliament shortly after announcing the election date, but for the last two elections the government has given a significant lead time (ten and six months respectively).

The Labour and Green Parties secure enough seats to form a government, or the National shifts its policies during the election campaign in order to secure votes, or whether the National has to make greater concessions to other parties to gain their support, will remain key in deciding the future pathway.

The Government has long been aiming to reduce personal income tax rates, and the improving fiscal accounts suggest that there is now room to do so. However, the costs associated with the Kaikoura earthquake may take priority, and the Government has also recently hinted at an increase in family assistance. But with projections of growing surpluses over the coming years, it was already likely that next year’s Budget would include some form of fiscal stimulus.

Not only for fiscal implications, the costs associated with the Kaikoura earthquake may take priority, and the Government has also recently hinted at an increase in family assistance. But with projections of growing surpluses over the coming years, it was already likely that next year’s Budget would include some form of fiscal stimulus.

In addition, a change in the governmental leadership also creates some uncertainty for the RBNZ in terms of both macroprudential as well as monetary policy. The RBNZ is seeking to add limits on debt-to-income (DTI) ratios to the list of macroprudential tools included in the MoU, and has been negotiating for some time with the Treasury and the Minister of Finance. Those negotiations will have to start again with a new Minister, whose position on such interventions is unclear, Westpac reported.