‘Job losses key to taming inflation’

Just under 50,000 people may need to lose their jobs before the Reserve Bank Te Pu¯ tea Matua can bring inflation under control.

Economists at the Financial Services Council conference in Auckland on Wednesday followed an upbeat presentation by Finance Minister Grant Robertson with a more doom-laden panel assessment of the next 12 months for the economy. Robertson said he didn’t want people to talk themselves into a negative frame of mind, telling delegates there was ‘‘every reason to be optimistic’’ about the year ahead.

But the economists who followed him on the conference podium struck a less upbeat tone, saying unemployment might have to rise from 3.3% to 5% before inflation was back within the central bank’s target range of 1% to 3%. ‘‘The Reserve Bank published a forecast of 5% in their last monetary policy statement,’’ said Sharon Zollner, ANZ’S chief economist.

‘‘It’s quite reasonable to interpret that as their best estimate for what they think they need to see,’’ she said.

Mark Lister, head of private wealth at Craigs Investment Partners, said: ‘‘The central banks are driving the ship at the moment, aren’t they? I think the outlook is in a big way a function of how they operate.’’

But he said: ‘‘Going from 3.3% in the March quarter to 5% is quite a big move.’’ The 3.3% unemployment rate in the June quarter represented 96,000 people, data from Stats NZ shows.

In December 2020, when the unemployment rate was 4.9%, the number of unemployed people was 141,000. An unemployment rate of 5% was still low in the context of history, Lister said.

But Zollner said the rise would be as rapid a rise in unemployment as when the global financial crisis (GFC) hit. There was the risk that the Reserve Bank’s actions could drive unemployment higher.

Zollner said ANZ now expected the Reserve Bank to crank up the official cash rate (OCR) from its current 3% to 4.75% by the end of May next year.

The economists were not certain whether the country would avoid a technical recession of two quarters of negative growth.

Zollner said that definition was not how the public thought of a recession. ‘‘For the person in the street, they define recession in terms of employment,’’ she said.

The current labour market was ‘‘very, very tight’’, she said, and bringing down inflation required ‘‘some spare capacity’’ in the labour market.

It was a hard thing for the Reserve Bank to talk about, she said.

‘‘It’s a difficult thing for them to talk about. To beat inflation, they require some people to lose their jobs. That’s a comms challenge right there,’’ she said.

Unemployment had not been this low since the 1980s, Lister said. ‘‘You’ve got to cause some pain. You’ve got to create some unemployment,’’ he said.

Rules are being standardised to make it clear that more than 250 fees and charges that are required by laws and regulations are subject to GST.

That includes the likes of fees paid to government agencies for the renewal of a licence or registration, or industry charges where business owners pay to fund a representative organisation or regulator. The Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill is working its way through Parliament.

It introduces GST obligations for platforms such as Airbnb and Uber, and it would have made fund managers’ fees subject to GST, a controversial decision that has since been reversed.

The bill also clarifies that any charges that are payable because of a law or regulation will attract GST. At the moment, some charges attract GST but some do not.

A regulatory impact statement said the current approach to GST on these fees was inconsistent and ‘‘incoherent’’.

‘‘There are over 250 statutory and regulatory charges across New Zealand’s acts and regulations, and it is important for the integrity of the GST system that the GST treatment of these charges follows a consistent and coherent framework.’’ It is proposed that the rule change will take effect for new charges that come into force after July 1 next year, and all other charges in 2026.

Deloitte tax partner Robyn Walker said the charges affected included things such as levies for egg manufacturers and feijoa growers who were making payments to industry bodies.

But she said every example of a levy that she could find seemed to have different legislative provisions on how GST would apply.

‘‘It’s definitely an area where it would make sense to tidy it up.’’

She said the change would mean any charges that did not currently have GST added would increase by 15%.

It is not clear how many this would be.