New government’s economic policies expected to have little impact on inflation, interest rates

By earthnews
12 months Ago

New government’s economic policies expected to have little impact on inflation, interest rates

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Winston Peters, Christopher Luxon and David Seymour.
Photo: Phil Smith

The incoming government’s economic and financial policies are likely to have little immediate impact on the cost of living, inflation and interest rates, but imply deeper spending cuts in due course to pay for changes of priorities and eventual tax cuts, economists say.

The barebones of the policies released in the coalition agreements confirm much of the three parties’ pre-election manifestos, including:

the Reserve Bank (RBNZ) having a sole focus on inflation, and investigate specific time target in getting inflation back in target zone
the restoration of interest rate deductibility for rental properties, scaling back the brightline capital gains tax.
rewriting the Credit Contracts and Consumer Finance Act (CCCFA) to remove unnecessary limits on getting credit, while protecting vulnerable consumers
a regional infrastructure fund of $1.2 billion.
tax cuts in 2024, but with the foreign buyers’ tax scrapped, money to come from reallocation of current spending and “other revenue gathering”
the end of Fair Pay Agreements, and expansion of 90-day work trials
investigating the reopening of the Marsden Point refinery
removing the ban on offshore oil and gas exploration.

No game-changer

ANZ economists said there were no major surprises in what had been released so far.

“What we’ve seen [on Friday] does not appear to be a game-changer for macroeconomic policy settings and therefore the RBNZ … but at the margin may be seen as hawkish.”

Westpac economists similarly found no surprises in the policy outlines, but suggested that government finances would be tighter to fund the tax cuts now that the foreign buyers’ property tax, which would have part paid for the cuts, was gone.

They suggested savings would come from not increasing the Working for Families tax credit in 2026, and changing the timing of the fees-free year for tertiary students.

“At the margin, this funding means that the overall fiscal stance of the government will be slightly more contractionary than would otherwise be the case,” Westpac said.

It also saw the property sector changes to encourage investor participation possibly giving some stimulus to the economy.

ANZ said among the other measures, trying to rebuild the now dismantled Marsden Point refinery would likely be too expensive, and allowing offshore oil and gas exploration would struggle to find overseas takers.

Both sets of economists acknowledged the lack of specific numbers, and unknowns such as how much public service services and staff might be cut.

“It’s all consistent with a slightly different compositional mix of economic activity going forward – a smaller government sector and a larger private sector – but not an obvious game-changer for overall aggregate supply and demand and thus our estimates of inflation pressure and the outlook for interest rates,” ANZ said.

The half-year economic and fiscal update (HYEFU) in the middle of next month will offer the first significant numbers on which to make policy financial assessments, as well as bring in changes in the expected slimmed down mini Budget.