IMF report shows Budget not even close – 28 May

The International Monetary Fund (IMF) has released a report assessing the implications of fiscal policy changes on rebalancing and growth. The report stated that “New Zealand’s key policy challenge is to rebalance the economy and reduce external vulnerabilities.” The Budget has simply missed the mark on both points say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive John Walley says, “By increasing debt levels and failing to deliver significant rebalancing pressure to the economy the Government has entrenched the existing vulnerabilities. Lower personal and corporate tax rates and debt expansion at about $1 billion a month are not going help the productive economy.”

The key comment in the IMF report was the potential impact of reduced spending on monetary policy saying, “The initial fall in aggregate demand lowers inflationary pressures, which creates room for easier monetary policy. With interest rates elsewhere unchanged, lower nominal interest rates in New Zealand cause the nominal $NZ effective exchange rate to depreciate.”

“The 2010 Budget anticipates three percent growth for the next three years which is scary considering the international uncertainty that still exists,” says Mr Walley. “The removal of the depreciation incentive to invest in productive activity, the downgrading of support for research and development, and most significantly, the pressure on the currency from that borrowing create significant risks. Problems elsewhere in the world could easily affect our growth rate driving more Government borrowing and reducing returns to exporters.”

“The 2010 Budget has been styled as the biggest change in 20 years, but essentially it is a tax merry-go-round. A much bolder more cohesive approach that really matches the rebalancing rhetoric is needed to deliver any substantial change to the shape of our economy.”

ENDS

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