Budget rules getting in the way of a good spend-up - economist

The Government is being urged to loosen the purse-strings and spend up, to avoid the worst impacts of the cooling global economy.

The International Monetary Fund late last year downgraded its outlook for 2019, partly thanks to the trade war between the US and China and the uncertainty around Brexit.

Finance Minister Grant Robertson said on Thursday it's unlikely he'll drastically shuffle his planned spending priorities or the amount on offer in the Government's hotly anticipated first 'Wellbeing Budget'.

"We've got the ability to go through these shocks. And clearly I've said time and time again, if there is a major recession... we would look again at our Budget Responsibility Rules and make sure that we continue to support people through that and support businesses to grow."

Treasury expects New Zealand's growth through 2019 to remain around a "solid" 3 percent. The biggest risk, according to Mr Robertson, is what's happening overseas.

"We've been saying for some time the biggest risk to the New Zealand economy is the international economy, and it's why it's really important that we continue to diversify the markets we trade in, it's why we're focused on this visit on the EU free trade deal, and diversify the products that we're exporting as well.

"I think New Zealand's well-placed, we're resilient - but clearly we're affected by what happens globally, and the forecasts at the moment are not as good as they were."

Economist Shamubeel Eaqub told The AM Show the drop in business confidence mid-last year flowed through to softer figures late in 2018, but it hasn't been as bad as businesses feared.

"Domestically we are relatively well-set - we've got interest rates that can be cut, we've got a Government that can spend money - the big risk is global."

He said the Government should be spending up right now, but can't without breaking its self-imposed Budget Responsibility Rules. They include paying off debt racked up in the wake of the global financial crisis and maintaining its spending-GDP ratio to "within the recent historical range".

Another rule is to "prioritise investments to address the long-term financial and sustainability challenges facing New Zealand".

"We're going to be investing big sums of money in infrastructure and health and education and housing," said Mr Robertson.

"We'll still be doing those things, and I'm confident the plan we've got to shift the economy to a more modern footing to make sure we deal with climate change, that we move to a low-carbon economy... all of that stuff will prepare us well for the future... I'm confident we can manage whatever the world throws at us."

Mr Eaqub said the reluctance to borrow means the recovery from the financial crisis has been steady but slower than it could have been.

"We haven't borrowed as much as we used to... we borrowed again this time around, but mainly just bought houses from each other again."

Bernard Hickey, economist.
Bernard Hickey, economist. Photo credit: The AM Show

Mr Eaqub isn't the first economist to urge the Government to free up its restrictions - Newsroom Pro's Bernard Hickey said last year the rules are bringing in huge surpluses that should be spent, as "the bond markets don't give a toss about the 20 percent debt target".