Election 2023: National’s tax cuts could push interest rates up, Goldman Sachs analysts warn

Goldman Sachs analysts warn National’s proposed tax cuts risk exacerbating inflation, and therefore causing interest rates to remain higher for longer.

Andrew Boak and William Nixon believe a National-led Government would increase the chances of the Reserve Bank of New Zealand (RBNZ) either keeping the official cash rate (OCR) on hold at 5.5 per cent for longer than expected or lifting it above this level.

While National has argued its tax cuts would be fully paid for using revenue generated from new taxes and savings made from cutbacks to public spending, Boak and Nixon said in a research note these measures “may not fully offset the stimulatory impact of the tax cuts”.

They believed National’s proposals to tax foreigners who buy residential property, increase the fees people who apply to migrate to New Zealand pay, and remove the ability for commercial building owners to deduct depreciation as an expense when paying tax would have “small multipliers on domestic spending”.

In other words, these measures wouldn’t offset the stimulatory effects of National’s plans to provide income tax cuts by adjusting tax brackets for inflation, and reduce the tax burden on residential property investors by bringing the bright-line test back to two years and phasing out the interest limitation rule.

If you are suffering high food prices now and bleeding out with Mortgage rate rises, wait until National gets into power.

Their Tax Cuts were always questionable but basing it all of a Foreign Buyers Tax now one believes highlights how weak the whole plan is.

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What Goldman Sachs, who have no dog in this fight are saying is that National’s economic plan will exacerbate the current inflationary pressures and push them up even further triggering more OCR rate rises and high inflation all round.

When you see the fear of the Fed going harder for longer weighing on the Dow Jones today…

…National’s plans are going to be viewed by the market as inflationary and it will react.

Add into this chaos the type of horse trading required to get anything through a ACT/NZF/National coalition and the future looks far more economically grim under a ACT/NZF/National Government!

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