WELLINGTON: New Zealand’s economic growth will slow over the next four years but the unemployment rate is expected to drop below five per cent for the first time since the global financial crisis.The government is happy the economy will continue to grow – it paints it as an average of 2.8 per cent – but unusually low inflation means it can’t tap into that growth and take correspondingly more tax.
Figures released by Treasury on Thursday as part of budget forecasts show New Zealand’s growth in its $230-billion GDP, 2.5 per cent in 2014, is predicted to rise to 3.3 per cent this year but then taper off to 2.4 per cent in 2019. The growth is based on increased migration growing the workforce and stronger retail trade.
The Christchurch earthquake rebuild is also contributing between one and 1.5 per cent of the GDP growth.Treasury is also assuming prices for New Zealand’s biggest export earner, dairy, will recover from current lows, although not to the heady days of 2013-14. The lower dairy price is part of the reason GDP growth is expected to slow.
The unemployment rate hit a low of 3.7 per cent in 2007. Last year it hit 6.1 per cent but is expected to drop to 4.5 per cent in four years, when the average wage is expected to have risen $7000 to $63,000. That was a positive story, Treasury said. But the low inflation rate of 0.1 per cent was unusual in the context of solid economic growth.
While it was good news for people with mortgages and businesses wanting to invest, it also meant the government’s forecast tax revenue for 2015-16 of nearly $75b would be $4.5b lower than last year.That would continue for three years. That meant the government’s books, $684 million in the red for 2014-15, would only show a surplus of $276m in 2015-16.
Finance Minister Bill English admitted low dairy prices were a headwind to growth, and there were still global economic uncertainties. ‘The economy has risen from deep recession to solid, three per cent growth,’ he said. ‘New Zealand has come through significant challenges and is now a more confident and resilient country than it was seven years ago.’
