The Government's three-year tax cut programme started earlier, and was larger, than the Reserve Bank had expected. Dr Cullen, who said his budget would not cause the Reserve Bank to raise rates, had done the bank no favours, said Westpac chief economist Brendan O'Donovan.
"Dr Cullen has thrown the kitchen sink and pot scrub at winning an election," Mr O'Donovan said.
"It delays interest rate cuts substantially and reduces the magnitude of prospective cuts."
For a $200,000 mortgage, it would take just over a 0.5 percentage point rise in retail lending rates -- from 9.4 percent to 9.93 percent -- to wipe out the $16 a week tax cut promised to those getting paid between $40,000 and $60,000.
From October 1, those earning under $40,000 will get up to $12 a week more in their pay packet, those getting paid under $60,000 will get around $16 more a week and those over $70,000 will receive $28 more.
"The stone cold reality is that $12 to $28 a week of tax support from 1 October barely covers the recent rises in the cost of milk, bread and petrol for a typical family," said ANZ senior economist Khoon Goh.
Unusually, the market reaction was large, with the market starting to take the view that interest rate cuts priced in after recent poor retail and job data will now happen later than previously forecast.
The New Zealand dollar jumped over one US cent to nearly US79 cents while two-year swap rates zoomed up 0.15 percentage point in the wholesale money market.
ANZ was becoming inclined towards the Reserve Bank holding rates steady for longer, to assess the impact of the tax cuts from October 1.
"Even with the deteriorating economic outlook, such a sizeable package will have the RBNZ on notice. Not enough for them to hike, but certainly enough for them to be wary of the potential reflationary role fiscal policy could play," Mr Goh said.
Deutsche Bank had expected the first interest rate cut in September/October, but now expected a rate cut in December, with some risk that it might happen later.
The size of the fiscal stimulus has increased from 1.1 percent of GDP to 2.3 percent in 2008/09, the largest stimulus since the 1997 tax cuts.
Economists said Dr Cullen had outflanked the National Party because there would be no room for additional tax cuts or stimulus.
Mr O'Donovan said the budget was a massive surprise. The surplus was forecast to shrink to virtually zero in 2011/12.
"They have delivered fiscal stimulus of more than could reasonably be expected," he said.
The OBEGAL operating balance (before gains and losses) for the June 2009 year is now forecast at $3.1 billion -- half what was forecast in December. In the following year the $1 billion surplus is a quarter of the previous forecast.
Goldman Sachs JBWere economist Shamubeel Eaqub said he did not believe the tax cuts would be sufficient to cushion a sharply slowing economy.
"The tax cuts do not alter the economic outlook sufficiently and we maintain that interest rates will need to fall over the year ahead. We do not think the budget today will impede that process."
