Source: The Treasury
The latest evidence points to a likely further downgrade to the Treasury’s economic and fiscal forecasts, Treasury’s Chief Economic Adviser Dominick Stephens told the Chartered Accountants Australia and New Zealand (CAANZ) Annual Tax Conference in Wellington this morning.
“The Treasury has been revising down its assessment of future economic activity at successive updates,” said Dominick Stephens. “The key reason is accumulating evidence of a sustained productivity slowdown. Productivity is the key to economic growth, so as evidence of the productivity slowdown has emerged Treasury has steadily revised down its forecast for future economic activity.
“New Zealand is currently running a structural fiscal deficit, with expenditure exceeding revenue. Economic growth falling short of expectations has been making it harder for the Government to bring the books back into balance. The fiscal challenges are compounded by longer-term pressures from population ageing and climate change.
“New Zealand is not alone. Productivity growth began slowing in New Zealand and around the world before the global financial crisis and has fallen even further in the last decade. Last week the Reserve Bank of Australia cited flagging productivity as a cause of forecast revisions across the ditch,” said Mr Stephens.
New Zealand’s per capita GDP has fallen 4.6% since late 2022. Treasury’s May Budget forecasts anticipated a return to economic growth in the second half of 2024, but the latest data now suggests that the recovery will begin later.
“One should always read real-time economic data with caution, but this presents further downside risks to the Treasury’s productivity, economic growth, and tax revenue forecasts.
“On a more positive note, there is scope for policy to help lift productivity growth over time by focussing on areas such as investment, internationalisation, innovation, and competition,” concluded Mr Stephens.
The Treasury will be publishing its Half Year Economic and Fiscal Update on 17 December 2024.
