Moody’s joins S&P in reserving judgment on Budget statement
Credit ratings agency Moody’s has signalled it isn’t yet rattled by an admission from the Government that it may not get its accounts back into the black for another five years.
The ratings agency made clear that it viewed both the scale and “character” of tax relief and spending cuts to be announced in the Budget as important.
Finance Minister Nicola Willis confirmed on Wednesday when releasing her Budget Policy Statement for the May 30 Budget that achieving an operating surplus by the previously forecast target of the year ending June 2027 was almost certainly not achievable.
But it was also “not a given” that an operating (Obegal) surplus would be achieved the following year, she said.
The Treasury had forecast a $140 million surplus in the 2027 financial year and a $3.4b surplus the following year, when it published its Half Year Economic and Fiscal Update in December.
A long, unexpected delay in returning to surplus is the type of economic development that can lead credit-ratings agencies to review the ratings they apply to countries’ sovereign debt.
Standard & Poor’s ascribes a “AAA” rating to the Government’s New Zealand dollar-denominated debt and a AA+ rating to its foreign currency-debt, both with a stable outlook, while Moody’s also has a stable outlook on its AAA rating.
A ratings downgrade could push up the rate of interest that investors demand to be paid on about $160 billion of gross government debt.
Moody’s vice president Martin Petch noted that while the Budget Policy Statement outlined a weaker trajectory for economic growth, details on “the scale and character of tax changes and revenue decisions” would only be available at the Budget.
“The impact of these on the long-term fiscal outlook is important.
“New Zealand’s fiscal position is relatively strong compared to its peers and we expect that New Zealand will maintain its long-term conservative approach to fiscal policy,” he told Stuff.
S&P said late last week that it expected New Zealand’s fiscal deficit to narrow over the next three years and for net government debt to stabilise at a level that “compares favourably to those of most highly-rated peers”.
But analyst Martin Foo noted the fiscal deficit had been “quite elevated over the past three years and contributed to pressures on inflation and external accounts”.
He also cautioned that it would be a challenge to fund promised tax cuts entirely through reprioritisations, savings, and new revenue measures.
He also said S&P would “await further details” in the Budget.