IMF Releases Reports on NZ

May 27, 2010 International FinanceNew Zealand FinanceNew Zealand Taxation

International Monetary Fund [oct 25]The International Monetary Fund (IMF) has released two separate reports analyzing the future potential economic output and fiscal balances of the New Zealand economy.

On May 26th the IMF released The Potential Contribution of Fiscal Policy to Rebalancing and Growth in New Zealand and Potential Growth of Australia and New Zealand in the Aftermath of the Global Crisis, two separate working papers concerning aspects of the New Zealand and Australian economies, in the face of the receding effects of the global economic crisis.

The Potential Contribution of Fiscal Policy to Rebalancing and Growth in New Zealand, advises the New Zealand Government to rebalance its taxation policy to reduce the reliance on labor and capital taxation. Projections indicate that if appropriate alterations are made to shift fiscal focus to consumption taxes, New Zealand’s long-term growth potential will rise 1 percent above baseline. Although, the benefits will be negligible if the consumption tax revenues are redistributed via public transfers, such as benefits and welfare programs. The paper also suggests that Government spending be heavily reduced. As an example, the paper suggested that if Government expenditure be capped at 1 percent of GDP long-term economic growth could increase by 2 percent.

Potential Growth of Australia and New Zealand in the Aftermath of the Global Crisis discusses the impact of the financial crisis on New Zealand and Australia. According to the paper, New Zealand and Australia can be expected to undergo medium-term potential growth levels of 2.33 percent and 3 percent respectively. The Governments of both countries are warned to expect economic hurdles in the form of higher costs of capital. Although the difficulties could be offset by increased demand for commodities, especially from quickly recovering Asian economies.

Photo by JavierPsilocybin