Don’t fritter away rock star economy’s dividends, says economist
The dividends from New Zealand’s “rock star economy” are in danger of being frittered away on tax cuts and the repayment of government debt, says Berl’s chief economist.
Speaking after launching his state of the economy briefing, Ganesh Nana said Berl was often criticised for being negative in its comments.
While he was more than happy to acknowledge the economy’s situation, he warned caution was needed.
“We are not using the dividends of the rock star economy to build a platform for the future.”
Government debt was well under control by historical standards. It was the debt-to-income ratio of Kiwis which needed addressing, he said.
Latest Reserve Bank data showed household sector debt was 165 per cent of disposable income — topping earlier pre-global financial crisis highs. And with credit to the housing (mortgage) sector increasing by 9 per cent in the year to July, on top of the 6 per cent rise the year earlier, there were no signs of the debt stabilising.
New Zealand had experienced strong employment growth and falling unemployment, an improving external account on the back of robust export income shored up by tourism activity, recovering dairy prices, the government books back in black, tax cuts being touted, inflation well and truly tamed and positive business and consumer confidence, Nana said.
“There would seem little to be concerned about. But there is a nag- ging feeling that is difficult to shake for many.”
The Government last week said it had a surplus of $1.8 billion for the year ended June, with Prime Minister John Key and Finance Minister Bill English hinting tax cuts would be unveiled before next year’s election.
Nana questioned the wisdom of using the money for tax cuts when the Government should be pushing investment away from housing and towards business, jobs and R&D.
“If we’re serious about enjoying the dividends of the economy, we shouldn’t accept child poverty as something we have to put up with.
“Focusing on lifting low wages and investing in education and schools are the sort of things we should be spending money on rather than frittering it away.”
He said the Government had to take the lead role in turning the economy towards investment in “real dividends” for New Zealand.
Nana suggested putting some regulations around the banking system, encouraging funds going to business development.
“Our rock star situation clearly provides us with opportunities to tackle the long-term imbalances . . . [in the] economy,” Nana said. “However, the prominence of tax cuts in the immediate debate signs little desire to confront these fundamental challenges.”
We are not using the dividends of the rock star economy to build a platform for the future. Ganesh Nana, Berl chief economist