Wages on the up as new arrivals down
Falling immigration is expected to slightly slow economic growth in the early 2020s – but help increase the amount Kiwis are paid in wages.
This forecast comes as part of Treasury’s Half-Year Economic Economic and Fiscal Update (HYEFU), which also confirmed that the Government is on track to meet all of its Budget Responsibility Rules and maintain its surplus. The forecasted surplus has shrunk dramatically from $5.5 billion in the year to June 2018 to $1.7b in the year to June 2019, mostly as the result of signalled timing issues around Government spending. The surplus is forecasted to then jump back up to $4.1b in the following year and grows to $8.4b in 2023. This surplus helps keep the Government well within its self-imposed rules, with net Crown debt hovering at about 20 per cent of GDP over the forecast period before dropping 17.4 per cent in 2023.
The increasing tax take from higher wages and sustained growth keeps those rules within fairly easy reach: tax revenue is forecast to increase from $84b in the year to June 2019 to $100b in 2022. Annual GDP growth stays steady at about 3 per cent until 2021 when it drops to 2.7 per cent, then 2.5 per cent, and 2.3 per cent the year following.
Treasury forecast this drop-off as a result of tightening monetary conditions and an easing of net immigration. The agency expects net permanent and long-term immigration to drop from 63,000 people in the year ended September 2018 to 25,000 in 2021/22.
This will contribute to a tight labour market just as the minimum wage lifts to $20 per hour in 2021 and a number of public sector pay equity agreements are expected to be reached.
It is assumed these pay agreements will flow through to higher wages in the private sector. Treasury forecasts these factors will result in wage growth averaging about 3.5 per cent a year, compared with 3.2 per cent in the year ending September 2018, which was up from 1.6 per cent in the previous year. This is still behind the pre-GFC high of 5.4 per cent in 2008 but stays well ahead of CPI inflation, which stays at 2 per cent.
Unemployment rates stay steady at about 4 per cent over the forecast period.
Finance Minister Grant Robertson cautioned that immigration numbers were notoriously hard to predict and he didn’t always agree with Treasury on the immigration front. ‘‘They forecasted for it to get down to 25,000 by the end of the forecast period, that’s better than when they used to project 15,000; we will see if the forecasts actually play out that way – historically they haven’t.’’
Robertson said the Government was always keen to get the ‘‘mix’’ of immigration and the labour market right, declining to name a target for immigration.
‘‘We have to make sure we get the right mix in as well as training New Zealanders,’’ Robertson said.