Fiscal policy to remain loose for longer

Australian Treasurer Josh Frydenberg noted in October that the Government would not pursue budget repair until the unemployment rated was comfortably below 6%. However, the unemployment rate fell much more rapidly ahead of the May Budget than almost anyone had anticipated, reaching around 5.5%. The Treasurer responded by noting that the conditions for reducing the budget shortfall aren’t in place yet and unveiled additional stimulus measures in the Budget. And while the recent sharp decline in spending means that the New Zealand government is on track to shrink the structural deficit in 2020/21, the government unveiled considerable fresh spending in its latest Budget, too. The upshot is that the structural budget balance in both countries will remain deeply in negative territory for years to come.