As things stand, ANZ Research would have liked to see a bit more capital spending. There is a clear infrastructure deficit and done well, infrastructure investment pays for itself. But it is a balancing act and - given how quickly the world can change - it is hard to take a firm line that this is a mistake.
The NZ government needs to ensure their spending doesn’t compete with and crowd out private activity. This is why the focus should be on a long, relatively smooth forward-looking pipeline of prioritised infrastructure spending, with the option to ramp up if economic activity were to soften.
Given the pressures we’re seeing on infrastructure and the likely balance of risks around Treasury’s economic outlook, we suspect the debate on loosening fiscal targets is not over. For Budget 2018, prudent pragmatism is the order of the day.
On the funding side, NZDMO’s bond issuance guidance has been lifted by $NZ1 billion to $NZ8 billion in the 2019, 2020 and 2021 fiscal years, while 2018 and 2022 are unchanged at $NZ7 billion.
Over the five years to June 2022, total bonds issued are expected to be $NZ38 billion. Two thirds of the increase is owing to a reduction in short-term funding through Treasury bills.
In terms of off-balance sheet funding, there was little to report, which ANZ Research views as a good thing.