Report Delivers Another Clear Message to Govt

IMF Report Delivers Another Clear Message to Government

"Like last month's OECD report, the latest report from the International Monetary Fund sends another strong message to the government that its current policy settings are ill-founded and will not achieve the growth the government is hoping for", Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

"The report points to the imbalances in the economy that are causing exports to battle against the high exchange rate, and advises the government to move towards greater tax reductions and smaller spending increases."

"While Dr Cullen made it clear in his 2001 Budget that an annual growth rate of 4 percent or more was needed to achieve the government's goals, the IMF points out that on current policy settings economic growth is likely to remain below potential, with annual growth not expected to exceed 3 percent in any of the six years to 2012."

"The IMF also expects the unemployment rate to rise and average around 4.5 percent, and inflation to remain in the top half of the target range, thus failing to meet the price stability objective in the Reserve Bank Act."

Mr Kerr said the IMF noted that measures such as KiwiSaver and tax measures affecting housing would have limited impact (and it appeared to overlook the point that the latter could only have one-off impacts, rather than an ongoing effect on inflation).

He said that although the IMF report did not look at structural problems that were contributing to the economy's declining rate of productivity growth, such as the burgeoning business regulation, the rising tax burden, more restrictive employment law and inadequate infrastructure policies, its central message was nevertheless unequivocal.

"The IMF report adds further weight to the advice of the OECD and the concerns of the business community that government's policies are producing an unbalanced and underperforming economy, and that major changes are needed to reverse the productivity slide and lift the growth outlook to one consistent with the government's goals and the country's aspirations," Mr Kerr said.

8 May 2007

ENDS

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