A few weeks ago I wrote a post surveying the range of fiscal indicators (local ones and IMF/OECD metrics) to look at recent New Zealand fiscal policy across time and across countries.
I included in that post this chart, which I had cobbled together using IMF April data for other countries and their estimates for New Zealand reported in the recent Article IV review (it was the indicator they specifically cited in suggesting a need for “frontloaded fiscal consolidation” in New Zealand.
A new IMF Fiscal Monitor has been released in the last few days. We now have consistent cross-country estimates, including numbers for New Zealand which will have taken account of the government’s sudden “get religion” line-on-a-chart cuts of a few weeks ago.
With those updates all round New Zealand is now “only” projected to be third-worst among the advanced economies next year, on current policy (ie assuming the government’s top down cuts are effectively implemented).
And how about over time?
We used to be better than the pack. But now we are a lot worse.
You can see that New Zealand’s primary deficit are barely smaller than those at the height of the Covid spend, a quite different picture than the median country. Out of curiosity I wondered where we ranked.
Most countries have very substantially improved their cyclically-adjusted primary deficits/surpluses. New Zealand, by contrast, is way to the right of the chart.
But what of The Netherlands and Denmark? They seemed a little puzzling. I wasn’t aware they had recent fiscally reckless governments. It turns out that Denmark ran primary surpluses right through the Covid – look at just a fiscal chart and you’d barely know there had been a pandemic – and is now running a roughly zero primary balance (cyclically adjusted). The Netherlands has gone from primary surplus pre-Covid to deficit in Covid and subsequently. But the IMF estimates that next year they will have a cyclically-adjusted primary deficit of 1.8 per cent of GDP. Not great, but nothing like as bad as New Zealand’s projected 3.4 per cent of GDP deficit.
Whichever party leads the next government there is a huge amount of fiscal work to do – including real the “cuts” already included in the IMF numbers – all thanks to the extravagant fiscal choices of the current government in the last two (post big Covid spend) budgets.
