Debt Servicing Challenges

Hey, um, well, look, it's been a busy week, hasn't it? You had the OCR now, you've got the budget's been delivered. So I'll look a quick, I guess, an overreaching comment. Uh, the budget is what we expected. It is fiscally responsible. I I sort of do feel the hand or feel the awareness of the rating agencies in the background here. They had to demonstrate uh a meaningful and committed track to fiscal stability and fiscal restraint. And I think you have to acknowledge here, Mike. We are a small trading country. We're heavily dependent on offshore capital, which means we have to run a tighter fiscal policy than sort of global economic heavyweights. It is spurious to compare us to larger economies and say, well, they can have debts GDP of 80% or in 100%. We can't do that. Now, at a high level, forecast state of the books, surplus as measured by Obig Al X, achieved a year earlier than expected, which is a positive. Um, underline fiscal surplus there in that 28-29 year. It then accelerates away after that, actually, and the surpluses look really good. But I think you have to be a little bit circumspect about those longer term projections. There are massive levels of uncertainty out there. So just a quick reality check here. Uh the fiscal deficit in the June 2027 year is still over 11 billion dollars. It's 11.4 billion. It improves after that. So the improvement is sort of back ended. I think you have to be aware of that. Most importantly, what are the economic assumptions underlying the forecast? This bears inspection. Um, I look I'm not sure whether we're been so beaten down now that we say these forecasts look optimistic. Um, but I kind of think that's where we've ended up. So the June 2027 year uh growth 2.3%. I think we'd all be very happy to see that, wouldn't we? Uh subsequent years, 3.2%, 2.7%, 2.5%. And as it says, I think we've been so used to to growth being all over the show that we look at that and we go, oh, that feels robust. When actually it's probably what we should expect, isn't it? Um CPI inflation. Uh peaking as we're told by the RBNZ at over 4%. Treasury forecast 4% annual inflation in the June 2026 year, but it snaps back to 1.6% in the 2027 year, and then pretty much 2% for subsequent years. We can only hope that it is that stable. Uh I look at the 90 day bank will forecast where the level of interest rates, the uh Treasury suggesting that we sort of see the OCR. Uh the OCR 90 day pretty much closely linked, gets to 3.3% by 2030, so 3.4% OCR looks like that sort of peak in there. Um, that will remain to be seen. What are all these mac and machinations mean for government borrowing? Good news here. The forecast borrowing program is slightly lower than had been forecast. It's less than the market had been expecting. The market had been expecting a small increase in borrowing. There's actually a small decrease. I think around um six billion lower than expected. Well, why? Well, tax revenues are increasing and expenses increasing less than expected. Now, I always like to reflect Mike very quickly on some actual nominal numbers here, because percentage of GDP sometimes kind of, you know, uh that it sort of throws a little bit of shade on what they actually are. Net core crown debt. This is just a weird reminder. In the 2027 year, 191.8 billion. So the net debt, by 2030, it's 246 billion. There is over 50 billion more borrowing. But as a percentage of GDP, it falls because we're expecting GDP to increase. So nominal GDP when people say, What's the GDP of New Zealand? Well, it's 452 million at the moment. By 2030, we're expected to be 554 billion. So we do have a significantly larger GDP over the time.