Combining central and local government debt, it expected New Zealand\u2019s cash deficit to widen to more than 5% of GDP in 2026-27 before gradually narrowing.<\/p>\n
\u201cNew Zealand\u2019s general government deficit has averaged more than 5% of GDP since the pandemic \u2013 the second highest out of the 18 sovereigns we rate \u2018AA+\u2019 or above. Only the US has averaged deficits larger than New Zealand during this period,\u201d S&P said.<\/p>\n
While S&P wasn\u2019t particularly upbeat on New Zealand, its outlook for the country remains stable. In March, Moody\u2019s and Fitch changed their outlooks for New Zealand to negative. <\/p>\n
Investors look at credit ratings when assessing risks. The riskier a country is seen to be, the greater the return investors may demand for lending to New Zealand. <\/p>\n
This said, since the start of the conflict in the Middle East, investors have been demanding higher returns for lending to governments around the world.<\/p>\n
S&P highlighted the fact the conflict, and its effects, could persist for longer than Treasury assumed.<\/p>\n
Treasury saw the effects being temporary \u2013 delaying, rather than derailing New Zealand\u2019s economic recovery. <\/p>\n
So, while it believed uncertainty and high prices caused by the conflict would see the economy deteriorate through 2026, it saw a decent bounce-back occurring from 2027.<\/p>\n
However, S&P made the point that the economy was exposed to the conflict and supply-chain disruptions. <\/p>\n
\u201cDownside risks such as prolonged supply challenges and elevated prices for both oil and fertiliser could drive the country\u2019s inflation and interest rates higher, hindering the country\u2019s recovery in the economy, budget, and external accounts,\u201d S&P said.<\/p>\n
\u201cWhile we forecast real GDP growth will pick up to about 2% over 2026, downside risks could see the country\u2019s wealth gap and fiscal deficits widen compared with other advanced, highly rated sovereigns. If sustained, this could exert downward pressure on the sovereign rating.\u201d<\/p>\n
BNZ head of research Stephen Toplis believed the Budget should have appeased credit rating agencies. <\/p>\n
\u201cThe big question is whether the economic forecasts on which this analysis is based, and the ensuing fiscal forecasts are credible? And, will they survive the next election,\u201d he said. <\/p>\n
Indeed, Toplis believed there was a clear risk Treasury\u2019s outlook was too rosy. <\/p>\n
However, he cautioned it was \u201cunwise to be critical of anyone\u2019s forecasts in the current environment\u201d.<\/p>\n
\u201cThere are simply too many moving parts and even slight changes in assumptions about key variables, such as oil prices, can have disproportionate impacts on outcomes,\u201d he said. <\/p>\n
ANZ senior economist Miles Workman had a similar view. <\/p>\n
He didn\u2019t see the Budget being a catalyst, pushing S&P to change its outlook of New Zealand.<\/p>\n
However, Workman believed credit rating agencies would have taken more comfort had the return to surplus come from more concrete spending cuts and\/or tax hikes, rather than revisions to Treasury\u2019s forecasts. <\/p>\n
He, too, saw these as being on the rosy side. <\/p>\n
Infometrics chief executive Brad Olsen believed it was \u201cpretty impressive\u201d for the Government to deliver the Budget it did, against a backdrop of war and uncertainty.<\/p>\n
He noted S&P\u2019s commentary might have been a bit tougher on the Government than other ratings agencies, as its outlook was stable, rather than negative.<\/p>\n
Indeed, Moody\u2019s released a statement after S&P, also noting the risks around Treasury\u2019s forecasts, but saying the earlier than expected to return to surplus was \u201ca positive development\u201d.<\/p>\n
\u201cThis is consistent with our view of the strength of New Zealand\u2019s institutions\u2019 commitment to effective fiscal policy frameworks,\u201d Moody\u2019s said.<\/p>\n
Do you have questions about the Budget? Ask our experts \u2013 business editor at large Liam Dann, senior political correspondent Audrey Young and Wellington business editor Jen\u00e9e Tibshraeny \u2013 in a Herald Premium online Q&A here at nzherald.co.nz<\/a> at 9.30am on Friday. And for all our Budget coverage, click here<\/a>.<\/p>\n Jen\u00e9e Tibshraeny is the Herald\u2019s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.<\/p>\n