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T he New Zealand Economy: Outlook and Policy Challenges Presentation to the Institute of Directors

T he New Zealand Economy: Outlook and Policy Challenges Presentation to the Institute of Directors. John Whitehead Secretary to the Treasury. NZ recession and recovery . Annual average % change. 7. Forecast. 6. 5. 4. 3. 2. 1. 0. -1. -2. -3. Mar-97. Mar-99. Mar-01. Mar-03.

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T he New Zealand Economy: Outlook and Policy Challenges Presentation to the Institute of Directors

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  1. The New Zealand Economy: Outlook and Policy ChallengesPresentation to the Institute of Directors John Whitehead Secretary to the Treasury

  2. NZ recession and recovery Annual average % change 7 Forecast 6 5 4 3 2 1 0 -1 -2 -3 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Budget Update

  3. Higher unemployment % 11 Forecast 10 9 8 7 6 5 4 3 Mar - 99 Mar - 01 Mar - 03 Mar - 05 Mar - 07 Mar - 09 Mar - 11 Mar - 13 Main forecast

  4. Budget deficits % of GDP Forecast 6 4 2 0 -2 -4 -6 -8 2003 2005 2007 2009 2011 2013 Year ending 30 June Budget 2009 Forecasts

  5. Trading partner outlook improving

  6. Stronger domestic confidence

  7. Higher New Zealand dollar

  8. 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)

  9. NZ needs a switch in output towards the tradable sector

  10. Looking forward: Twin challenges • Complex inter-linkages between these two goals. • But policies to address them are complementary Higher economic growth Reduced vulnerabilities

  11. NZ’s income gap with AustraliaTo close the gap we need SIGNIFICANTLY higher growth

  12. NZ on path of slow decline

  13. Have to make a choice about where our future lies

  14. To reduce vulnerabilities we need less reliance on foreign borrowing

  15. 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

  16. Tough decisions

  17. 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

  18. Summary • The economy is picking up but the recovery looks “unbalanced” • NZ needs a comprehensive strategy for significantlylifting our future prosperity • This will require boldpolicies 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

  19. The New Zealand economy: outlook and policy challengesPresentation to the Institute of Directors John Whitehead Secretary to the Treasury

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