A major bank says the incoming Government will not immediately be able to fix all the economic problems facing New Zealand - and big financial difficulties lie ahead.
In its quarterly economic outlook, ANZ said soaring mortgage repayments were set to continue, given the Reserve Bank's 2 percent inflation target was still some way off. And the report made it clear there was a limit on what the incoming Government could do in the short-term.
"All up, while the change in Government doesn't appear to be a game-changer in terms of the 'on paper' fiscal policy impacts on aggregate demand, the housing market is likely to be a little stronger than otherwise," ANZ said in the report.
The National-led Government appeared likely to spend less but tax less, therefore delivering a "same-sized milkshake" with a "different flavour", according to the report. "However, looser housing-related policy is likely to act as a slightly stronger economic tailwind than otherwise."
What also remained unclear, ANZ said, was whether coalition negotiations, still ongoing between National, ACT and NZ First, would result in deeper spending cuts than the Nats signalled in its fiscal plan.
"Even after adjusting for the higher cost of delivering Government services, the new Government is inheriting a material increase in real Government expenses compared to pre-pandemic levels," the report said.
"For context, the National Party's pre-election fiscal plan was to cut spending by $8.5b on a cumulative basis to 2028, suggesting there's scope for much deeper spending cuts while still maintaining a larger public service compared to pre-pandemic.
"The question is whether there's political appetite to reduce the size of Government by more than signalled and, if so, whether that happens quickly (with material cuts to spending) or slowly (eg by making larger reprioritisations and containing growth in new spending over the coming years). While the sharper path would help take pressure off CPI inflation here and now... delivering significant spending cuts in short succession won't be easy or popular."
National was elected to lead the next Government last month, set to take over after six years of Labour at the helm.
