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Tax Reforms Needed To Bolster Economic Growth - IMF Report
Gyles Beckford, Business Editor
- International Monetary Fund report urges action on finances, growth, housing
- Annual report expects NZ economy to grow 1.4 percent this year, 2.7 percent in 2026
- Structural reforms needed to tackle deficits, urges tax reforms
- Time to start serious talk on long term superannuation costs
The government needs to get control of its finances and make broad based tax and regulatory changes to bolster growth, according to the International Monetary Fund (IMF).
In its annual health check on the country, it said the economy has come through the recession and it expected growth of 1.4 percent this year, and 2.7 percent in 2026.
Current financial and monetary policies were said to be appropriate with an emphasis on tackling deficits, and further official cash rate cuts by the Reserve Bank (RBNZ).
"The macroeconomic environment provides a window of opportunity for New Zealand to consider broad-based reforms needed to address medium and long-term challenges," the report said.
It said those challenges included getting government finances in shape, lifting productivity, addressing persistent infrastructure and housing supply gaps, and looking at the costs of an ageing population.
The IMF said lifting housing supply should be a key priority.
"Bold reforms are needed to free up land supply, incentivise efficient land use, and ensure adequate financing of local infrastructure."
Recovery underway
It forecast medium-term growth to be driven by migration, but "significant" structural reforms were needed to get better than modest growth.
The report said the economy would struggle if the labour market remained soft, and households and businesses were still under pressure, while rebuilding government finances by retaining savings, contained debt, and getting the best value for its spending would help avoid that.
But the IMF report reiterated a common theme of recent reports - the need for tax reform.
"Options include a comprehensive capital gains tax, a land value tax, and judicious adjustments to the corporate income tax regime," the report said.
It warned that any moves to improve competition in the banking sector should be handled carefully to ensure the financial system remained stable.
The IMF again suggested the country needed to consider how to cope with the long term costs and pressures of ageing.
"It is essential to initiate early dialogue among all stakeholders regarding comprehensive reform options that can help mitigate these challenges -- and other long-term spending pressures from healthcare and aged care needs - with fair burden-sharing across generations."
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