NZ budget 2009: Most important since 1984?
Kiwiblog brings up some great points about the importance of this years budget.
It turns out that the head of Treasury stated that this was the most important budget since 1984. Wow.
So he’s saying that this is more important than the “mother of all budgets“. When National came to power in the early 1990’s they faced threats of a credit rating downgrade and forecasts of huge budget deficits – which forced them to cut spending sharply. In conjunction with HIGH interest rates (even in real terms, we are talking like 8% real!!), a lift in petrol prices because of the gulf war, and weak other commodity prices, this saw the New Zealand economy suffer a huge contraction and unemployment went over 11%.
Now, real economy prospects aren’t quite as bad this time. Unemployment is at 5%, relative to 7% at the start of the 1990’s. Real interest rates are very low (hitting at around 1-2%). Some of our commodities are doing well, and even though some have experienced a sharp fall in price oil prices have also tumbled.
However, obviously there is a feeling that the threat on the currency from government policy is at its highest level since we floated the currency – intense.
“So he’s saying that this is more important than the “mother of all budgets“. ”
It’s possible, as far as the credit rating goes. In 1991, the need to spend hundreds of millions on bailing out the BNZ (again) made a rating downgrade inevitable.
This time, it feels like the chance of a downgrade is very much up in the air – and what makes it even more significant is that it would mark the first time in this recession that a developed country was downgraded purely because of its spending behaviour. The UK and US have avoided downgrades even with their horrendous deficits, and even in Ireland it took the nationalisation of half the banking system and the creation of a ‘bad bank’ to stir the rating agencies into action.
@Miguel Sanchez
Our credit rating was very much under threat in 1990/91 as well – hence the speed of the action from the National government.
If we get downgraded and the UK isn’t I will feel pretty damn ripped 😉
What are the threats to the currency? It’s only an intuitive feel, but I think the $NZ is about 10 percent overvalued against the $US and the $Au, can’t pick the right level against the UKpound though – Britain really is screwed.
@Matt Nolan
Our rating wasn’t simply under threat in 1991, we actually were downgraded from AA to AA-. In fact I’ve heard that a two-notch downgrade was a very real possibility at the time.