New Zealand is at risk of falling into a deeper recession, according to the International Monetary Fund.
In its annual report card, the IMF said the Government needs to rein in spending or else the country faces prolonged high inflation lasting until 2025.
The IMF said the economy had slowed, but significant labour market restraints had put upward pressure on wages, and the large positive output gap had kept inflation high.
“Growth is expected to slow to around 1% year-on-year in 2023 and 2024, with the possibility of a technical recession, despite some short-term boost from higher spending to address the North Island weather events and funding to meet central government cost pressures,” the IMF said.
“Inflation is likely to decline gradually to the 1–3% target range only in 2025 given the pick-up in non-tradable inflation.”
Finance Minister Grant Robertson announced yesterday the Government forecasts $4 billion in savings, although the Opposition say it is too little, too late.
On top of this, the New Zealand dollar has dropped significantly, sliding below US$0.60, and the NZX is on track to finish the month down almost 5%.
The strong US dollar is a bright spot for exporters who have been hit hard by the faltering Chinese economy, but the IMF’s warning signals the future could be glum if spending doesn’t cool.
“These are challenging economic times, all New Zealand companies, exporters can see that when they look out to the likes of China, but the underlying fundamentals of the economy are good and the IMF do point that out as well,” Robertson said today.
National’s response to this is to give rich landlords $250 per fortnight funded by robbing 2 year olds, literally stealing from climate change funds and mutilating public transport.
The banality of National’s self interest is beneath the challenge of the moment, take Matthew Hooton’s blistering assessment…
National concedes savings alone won’t fund its tax cuts, so also announced four new taxes. None applies to tax-exempt “charities” such as Go Bus, Shotover Jet, Sanitarium and Mission Estate Winery.
The first new tax, which National developed with assistance from Auckland’s Sky City Casino, is on offshore gambling websites. Labour says it already taxes them, collecting nearly $40 million a year in GST.
The second new tax is charging foreigners higher visa fees.
These two would raise a few hundred million dollars.
The third is bigger, which is reversing Labour’s Covid-era tax break for commercial property investors, forecast to raise just over $2b over the next four years.
The fourth is the proposed tax on foreign buyers purchasing properties worth over $2m.
The tax won’t apply to Australians, Singaporeans and perhaps citizens of other countries with which New Zealand has tax and trade treaties, but National says it will bring in $3b.
For that to be true, foreigners from countries other than Australia, Singapore and so forth would need to buy around $20b of houses over the next four years.
That’s more than 6000 houses with an average value of $3m. That assumption seems heroic, even if encouraging people to sell houses to foreigners to fund tax cuts is a good idea.
…he also notes the current economic situation is far more precarious than many appreciate…
Inflation isn’t close to being under control. As in the 1970s and 1980s, it risks becoming embedded. Interest rates will go higher before Christmas.
The current account deficit for the March 2023 year – after Covid was behind us – widened to $33 billion, 8.5 per cent of GDP, up from $24b or 6.8 per cent of GDP the previous year. That’s the worst ever recorded.
In the last decade we have dropped another six places on the OECD’s productivity league tables. We now have among the worst productivity in the developed world, according to the Government’s own Productivity Commission.
In 2024, the IMF says New Zealand will be the worst-performing economy in the entire world in terms of GDP growth, except for Equatorial Guinea, a small African dictatorship on the brink of economic and social collapse.
Grant Robertson’s profligacy has made public debt material again and his fiscal deficit already appears structural.
Debt servicing is again becoming a major area of government expenditure, as it was before Ruth Richardson, Bill Birch and Michael Cullen repaid Robert Muldoon’s, Roger Douglas’ and David Caygill’s reckless borrowing.
Ever-growing debt servicing will make it impossible for any government to meet rising health, education, superannuation, police and defence needs or invest in climate-change adaptation and other urgently-needed infrastructure. Each year, ever more of the tax we pay will go to bondholders.
This was the picture before we knew that the tax take had collapsed after lower-than-expected economic activity since Christmas, and that China faces its first recession since Mao Zedong died in 1976 and it began its reform programme. No one knows what a Chinese recession means for its domestic and geopolitical stability.
…Labour’s spending was to counter a once in a century pandemic that stretched the underfunded State beyond its capacity and the Rights argument is we need to cut back on the underfunded services that everyone hates!
The political project for the Right is to starve the State of revenue so it can’t be redistributed in the first place. That’s why they fight against new taxes with the same passion of mother bears protecting their cubs. Or White Rich Soccer Mums complaining why their daughter didn’t get the scholarship.
Where I agree with Hooton is how bad shit is about to get once our exposure to China’s slumping economy is exposed when the books get opened…
But everyone does know even worse economic data will be revealed in Treasury’s Pre-Election Economic and Fiscal Update on September 12.
Serious people know there are no circumstances in which tax cuts or increased handouts could be justified in the short or medium term.
Even Grant Robertson bothered to go looking for a further $4b of spending cuts over the next four years, in addition to the $4b he announced in May.
On top of that, National is now promising another $8b of cuts over the next four years, for a grand total of $16b.
…all eyes will be on NZ to see how steep the shut down in China is while exposing our exposure to them.
It will cause a run on the NZ stock market, those KiwiSaver accounts will get smashed and the sense of economic crisis will be intense.
National under John Key sold NZ a ‘all our cows in one Beijing Paddock’ strategy and unfortunately we handed our cows over cheaply to China and they have grown their own massive new dairy farms.
This is a fundamental shock to the model big Dairy have sold NZ for 20 years and it’s going to explode this month.
The problem is that as an autocratic leader, Xi sees his interests as China’s interests. An economic recession would be disastrous to those interests making the need for a nationalistic flag waving invasion of Taiwan islands or blockade the type of play left.
Let’s see how bad the trade with China is, let’s see the reaction of that exposure on the NZ Economy and let’s see how that changes the political debate.
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