• There is growing coverage in the media that a slowing economy could force a fiscal tightening to stay within the government’s fiscal responsibility rules.
• There is little evidence that the market is concerned with this risk, with the New Zealand government bond yields trading below the US for the first time in 25 years.
• While providing important political discipline, there is also some flex in the fiscal responsibility rules including scope to revise the timetable to reach fixed long-term goals.

The outlook for New Zealand’s fiscal policy is coming strongly under the spotlight and is looking to be an increasingly important factor as we move towards 2019. A key consideration for the government will be how, in an environment where economic activity is moderating, they navigate providing the short-to-medium term fiscal stimulus required for their policy agenda, while keeping to their long-term fiscal responsibility rules.

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