The Budget is focusing on re-structuring the tax system with the main changes expected to be: an increase in GST from 12.5% to 15%, lower income tax rates across the board and changes in tax policy around residential investment property with a mix of removing depreciation and possibly ring fencing.
The ANZ Market Focus report says initiatives in the Budget won't change prospects for a June hike, but they are likely to give markets reason to expect a lower endgame for the Official Cash Rate (OCR).
ASB Business Weekly believes the Reserve Bank is likely to be reasonably relaxed about the Budget, if there are no unexpected changes to the property tax rules.
It says the market sees a rate hike in June as a done deal following the impressive first quarter recovery in employment.
"Other than the Budget, the only obstacle to a rate hike would be offshore developments as markets still feel uneasy about the ongoing European Sovereign debt saga."
Westpac Weekly Commentary believes stronger data and a more confident tone from the Reserve Bank have cleared the path for a series of rate hikes, with June the most likely starting date.
It says the decision to fix or float is finely balanced - floating rates are lower than short-term fixed rates at the moment, but they are likely to rise faster as the Reserve Bank increases the OCR.
"Fixing if even for a short term, has the advantage of greater certainty around cash flows at a time when floating rates could be rising rapidly.
"Repaying more than the minimum amount and spreading the loan over a mix of terms, can also help to reduce the overall risk around uncertain future interest rate changes."
BNZ Markets Outlook is looking ahead to the other important piece of data to be released this week - the Financial Stability Report from the Reserve Bank on Wednesday.
It says this will give the latest snapshot of the big picture of the economy.
"This should be a generally positive report on the health of New Zealand's financial system and how it has coped with the ills of recent years."
