© the treasury the new zealand economy: outlook and policy challenges presentation to the institute...
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![Page 1: © The Treasury The New Zealand Economy: Outlook and Policy Challenges Presentation to the Institute of Directors John Whitehead Secretary to the Treasury](https://reader031.vdocument.in/reader031/viewer/2022032517/56649c9b5503460f949589d6/html5/thumbnails/1.jpg)
© The Treasury
The New Zealand Economy: Outlook and Policy Challenges
Presentation to the Institute of Directors
John WhiteheadSecretary to the Treasury
![Page 2: © The Treasury The New Zealand Economy: Outlook and Policy Challenges Presentation to the Institute of Directors John Whitehead Secretary to the Treasury](https://reader031.vdocument.in/reader031/viewer/2022032517/56649c9b5503460f949589d6/html5/thumbnails/2.jpg)
NZ recession and recovery
-3
-2
-1
0
1
2
3
4
5
6
7
Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13
Budget Update
Annual average % change
Forecast
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Higher unemployment
Main forecast
3
4
5
6
7
8
9
10
11
Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13
%
Forecast
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Budget 2009 Forecasts
2013
Year ending 30 June
-8
-6
-4
-2
0
2
4
6
% of GDP
2003 2005 2007 2009 2011
Forecast
Budget deficits
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Trading partner outlook improving
-2
-1
0
1
2
3
4
5
1999 2001 2003 2005 2007 2009 2011
Actual and Consensus Forecasts
Annual average % change
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Stronger domestic confidence
-30
-20
-10
0
10
20
30
40
50
1999 2001 2003 2005 2007 2009
Firms' own activity outlook
Net % of firms
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Higher New Zealand dollar
40
45
50
55
60
65
70
75
80
1999 2001 2003 2005 2007 2009 2011
Actual Budget 2009 Forecasts
Trade Weighted Index (TWI)
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Implications of recent data
• Good news:– The worst of the global recession is over– Signs of modest recovery in NZ
• Bad news:– Housing market strength and stronger NZ
dollar suggest an unbalanced recovery (too much domestic demand, strong dollar, not enough exports)
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NZ needs a switch in output towards the tradable sector
80
100
120
140
160
180
200
1990 1993 1996 1999 2002 2005 2008
Tradable sector Non-tradable sector
Real GDP (Mar-1990=100)
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Looking forward: Twin challenges
• Complex inter-linkages between these two goals.
• But policies to address them are complementary
Higher economic growth
Reduced vulnerabilities
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NZ’s income gap with AustraliaTo close the gap we need SIGNIFICANTLY higher growth
0
10,000
20,000
30,000
40,000
50,000
1990 1994 1998 2002 2006 2010 2014 2018 2022
Australia at 1.5% pa NZ at 1.5% pa NZ at 3.3% pa
Real GDP per capita ($US, 2000 prices)
Projections
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NZ on path of slow decline
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1820 1870 1913 1950 1973 1990 1998 2006
GDP per capita (1990 US$000s, PPPs)
Australia
NZ
US
Argentina
Uruguay
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Have to make a choice about where our future lies
0
5,000
10,000
15,000
20,000
1950 1958 1966 1974 1982 1990 1998 2006South Korea NZ
GDP per capita (1990 US$000s, PPPs)
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To reduce vulnerabilities we need less reliance on foreign borrowing
-110%
-100%
-90%
-80%
-70%
-60%
-50%
1989 1993 1997 2001 2005 2009
Net international investment position
% of nominal GDP
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Bold policies to help rebalance the economy
• Tax mix:– Higher GST, land tax, capital gains tax. Lower
income taxes (but which ones?).
• Monetary-Fiscal policy mix:– Slower growth in government spending would
allow RBNZ to keep interest rates low for longer
• Structural policy reform that encourages resource shifting
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Tough decisions
0
50
100
150
200
250
1994 1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049
Net debt (% of GDP)
If government spending continues on historical trend
Outcome needed(2009 Fiscal Strategy)
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Barriers to reform
• Not enough focus on the magnitude of the challenges we face
• Too much focus on short-term pain of reform
There is an urgent need to shift the focus and make clear the choices we face
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Summary
• The economy is picking up but the recovery looks “unbalanced”
• NZ needs a comprehensive strategy for significantly lifting our future prosperity
• This will require bold policies that bring together tax reform and structural policy reform and permit a policy mix of tighter fiscal policy and looser monetary policy
• Business leaders have an important role to play in framing the policy debate
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© The Treasury
The New Zealand economy: outlook and policy challenges
Presentation to the Institute of Directors
John WhiteheadSecretary to the Treasury