Economic Commentary

Wednesday, 9 June 2010

According to the New Zealand Institute of Economic Research, Bill English’s recent budget is the most positive change in direction for a decade, but it is still fumbling in its approach to stimulating long term growth.  “We’re slowly turning the Government spending supertanker, but we’ve missed the boat on dealing with tough looming policy issues, such as the affordability of superannuation and healthcare.”
“The tax package sets the right course by rewarding work and enterprise instead of spending, borrowing, and tax dodging. It shows a firm resolve to constrain the growth in Government spending below the growth of the economy. This will help redirect resources to the most productive, competition-exposed sectors of the economy.”
Inflation is set to spike higher than economists had predicted as a result of the GST increase and other levies, adding to expectations the central bank will begin hiking interest rates at its next meeting on June 10.
The Treasury is forecasting the consumer price index will jump to 5.9 per cent in the first quarter of 2011, more than twice its estimate of six months ago. The department raised its projection for the track of CPI for the next four years.
Consumers are expected to lift spending, particularly on durable goods, ahead of the GST increase on October 1.
Real output is expected  to grow about 3 per cent a year starting with a 3.2 per cent gain in the 12 months through March 2011, having contracted 0.3 per cent in the year just past.
Reserve Bank Governor Alan Bollard had urged the government to be wary of creating too much fiscal stimulus, creating a bigger monetary policy job for the central bank.
From October 1, the top tax rate, payable on income above $70,000, will fall from 38 cents to 33 cents in the dollar. The 33 cent rate which applies on income between $48,000 and $70,000 will fall to 30 cents and the 21 cent rate, on income between $14,000 and $48,000, will fall to 17.5 cents.