The main economic news in both Australia and New Zealand was about their respective national budgets.

Treasurer Jim Chalmers handed down an eventful Australian budget on May 12. In the face of concerns about intergenerational equity the budget contained a variety of tax changes.

Against the backdrop of Australia having three of the top 10 most expensive housing markets in the world based on prices to median incomes (Sydney second, Melbourne fourth, Adelaide ninth) the budget announced an end to negative gearing. Losses from established residential rental properties will no longer be able to be offset against labour income.

Changes to Capital Gains Tax (CGT) have proven more controversial. The current 50 per cent discount on the marginal rate paid is set to be changed back to the pre-1999 system of inflation indexation but no discount on the rate. If this change applied only to the rental housing market, there may have been less pushback.

But applying this to all markets has raised concerns about the effect on low-capital-base, high-growth start-ups, that could be harmed by the return to indexation rather than the 50 per cent discount approach. The government has passed legislation in the lower house and plans to negotiate a path through the Senate in late June.

Regarding fiscal sustainability, the budget leans on reforms to the National Disability Insurance Scheme (NDIS) to constrain spending growth. Government spending as a share of GDP stays at an historically high 26.8 per cent through 2027-28. It falls to 26.2 per cent in 2029-30 based on the proposed NDIS cuts. Deficits are still around 2 per cent of GDP and debt continues to growth as a result. The budget is forecast to return to surplus in 9 years.

The New Zealand budget took a more significant step towards fiscal sustainability. It takes what has been for several years a two-percentage point of GDP deficit and forecasts turning it into a roughly 1% surplus by 2030. This is achieved by reducing government spending as a share of GDP, mainly through top-down efficiency measures that constrain expenditure. There is also a fairly significant increase in revenues – more than 1.2 percentage points as a share of GDP – driven largely by so-called fiscal drag, where inflation pushes people into higher tax brackets. While this is a step in the right direction, it remains to be seen whether both the revenue generation and spending reduction will materialise.

The RBNZ left the official cash rate on hold at 2.25 per cent at its most recent meeting. With inflation at 3.1 per cent (outside the 1-3 per cent target band) a rate rise was not out of the question. However, with real interest rates remaining negative, monetary policy continues to be accommodative, reflecting concerns about the economic fallout of conflict in the Middle East.

Like peer central banks, the RBNZ is balancing competing concerns. Higher than desirable inflation points towards rate rises, while weakening global argues for keeping rates low.

In its statement, the RBNZ seemed more relaxed about the medium-term inflation outlook, saying: "Inflation is expected to peak at 4.3 percent in the September quarter and to return to the 2 percent target mid-point in mid-2027. Currently, core inflation, wage growth, and medium- to long-term inflation expectations remain consistent with inflation returning to the 2-percent target mid-point over the medium term."

The RBNZ has kept its options open and is well positioned to manage both inflation and growth challenges.