Budget 2016 will possibly go down in history as being unremarkable. There were no major revelations nor important policy announcements. This is not unsurprising considering the Government is only a year away from an election. Some political commentators have even called the Budget boring, so why is this good for investors?
Investment markets like consistency of policy and messaging. This Budget has certainly delivered that. Consistency allows businesses to plan with a degree of certainty and enable them to more confidently spend on staff, machinery and other items that grow revenue and ultimately profit. The incumbent Government is shown to be a prudent manager of the economy with its commitment to invest into some infrastructure, continue to support innovation and tame the housing market over time. This prudence is looked on favourably by local and offshore investors who do not want to take big risks by investing into volatile economies. Contrast this with the USA. There, we have a steadily recovering economy but with the potential for Donald Trump to become the next President. Concern around Trump and what he might do if elected President will stifle investment in certain areas of the economy leading to an economic recovery that might take longer than anticipated.
The New Zealand 2016 Budget forecasts make interesting reading and signal where Treasury and the Government believe the economy is headed. Gross Domestic Product (GDP), inflation, cash and the operating balance are all predicted to grow over the next three years whilst items such as unemployment rate, current account deficit and core crown debt are all projected to fall. This signals a belief that the next three years are projected to be positive provided some unforeseen shock does not hit us.
Obviously nothing is guaranteed in this world but if all goes according to the incumbent government’s economic plan, then we should get through the next few years without too many economic dramas. Election year (2017) will most likely signal a more stimulatory budget and this might even include some tax reductions. Any tax reduction is a positive for investors as many are paying in the vicinity of 30 cents in the dollar on wages, investment income and capital gains.
Call your Milestone adviser if you require more information on the budget 2016 implications