The International Monetary Fund (IMF) warns the government and Reserve Bank (RBNZ) need to be careful removing emergency support from the economy.
It suggests the government continues to ensure fiscal policy is targeted. Meanwhile it maintains the RBNZ needs to make “significant increases” to the Official Cash Rate (OCR) in the near-term to get on top of inflation.
The Washington-based organisation included these recommendations in an annual review it did of the state of the New Zealand economy, following consultation with government authorities.
It said the RBNZ had to undertake “swift policy normalisation” to signal that addressing inflation is a priority.
The IMF said fiscal policy should “remain agile”. It credited the government for targeting support to businesses struggling due to Covid-19 by providing temporary support payments. It noted the importance of helping those who need it, without adding to demand pressures in this inflationary environment.
However, the IMF said the Government should not provide fuel excise duty and user charger cuts beyond the three months already committed to. Finance Minister Grant Robertson has kept the door open to extending the $350 million dollar policy beyond three months, should petrol prices remain high.
Rather, the IMF recommended introducing measures to better target vulnerable households struggling in the face of rising living costs.
It said public debt levels are sustainable and there is “substantial fiscal space” available to address downside risks.
The organisation said “downside risks dominate in the near and medium term”.
“The most immediate risks are further outbreaks of Covid-19 variants, either globally or within New Zealand, and further intensification of geopolitical tensions, which could adversely affect economic activity and inflation in New Zealand through weaker external demand and higher commodity prices,” the IMF said.
“Extended global supply chain disruptions could impact growth and inflation. Slower growth in China could have a significant impact on New Zealand’s economy given China’s importance as a trading partner.
“Apart from Covid-19, domestic risks are centered around financial stability and growth implications of developments in the housing market due to high household debt, borrowers’ vulnerability to rising interest rates, and banks’ high exposure to housing.”
The IMF was supportive of moves the government and Reserve Bank have made to date, which have directly or indirectly cooled the housing market.
However, it said providing local councils and iwi with financial incentives to step up the provision of basic infrastructure for new developments would be helpful.
Tax was another area the organisation saw room for improvement in.
“Transitioning from relatively high corporate income tax to other sources, such as capital gains and possibly land taxes, would improve efficiency without reducing aggregate revenues,” it said.
Finally, New Zealand’s response to climate change was inadequate in the IMF’s eyes.
“The recent rise in carbon prices is welcome, although addressing agricultural emissions - the largest single emissions source - will require the successful implementation of planned agricultural emissions pricing,” the organisation said.
“The forthcoming Emissions Reduction Plan is an opportunity to strengthen the price-based system, which would incentivize the adoption of new technologies and methods needed to achieve the targeted reductions.
“Parts of the proceeds of higher emissions prices should be used to further mitigate adverse social consequences.
“Complementary policies to address emissions, including through stepping up public investment and encouraging innovation, can help accelerate the transition to a low-emission economy.”
Beyond this, the IMF was generally happy with the management of the economy, including New Zealand’s Covid-19 response.
111 Comments
Fitzgerald
Just keeping a balance in comments. :)
Yes, decrease of 6% in house real values due to inflation is also a 6% decrease in real value of mortgages.
Recent FHB will be happy - that $700k mortgage will have decreased in real value by $42k. Us lucky boomers who lived through the 80s well know how mortgages can deflate away. :)
While I don't think increases to incomes will necessarily match inflation, I hear there are a lot of people (especially at the less well off end of town) who are demanding pay increases and getting them. Unions are seeing larbour shortages due to Covid as an ideal time for industrial action (see the CHEP worker strike).
For some and not limited to pay bands. I managed to get 15% increase in my contract day rate from 1 year back. Though that's about all its gone up in 4 years. And on the back of more experience. I'm also in a high demand skill set.
But that's Not even close to matching house price inflation over the same period.
The disconnection between our wages and the cost of housing is still completely out of sync... and will be until house.. Prices.. Fall!
All the cpi inflation will do is eat further away at disposable incomes.
Also, you wait for the new migrants to start flooding in next year and then try asking your boss for a pay rise. See how that turns out ;)
Yeah, still reading through all the fine print on your terms and conditions, might need a lawyer in case I missed something.
I notice your comments seem to have a common theme of being Whining and Moaning, according to others. ( Maybe even racist ).
So I see you feel threatened by the increasing narrative the property market is Tanking. Biggest Bubble in the world is now heading for the Biggest Economic Crash ever recorded in the World. Simple stuff really. Im not sure why people find this so hard to cope with.
So how can I help you there Kook ?
And your posts have a common theme of poor grammar and hyperbole, but I promised to be more respectful so I'll leave it there,
We didn't get to terms and conditions so sense you really aren't prepared to back your mouth. My bets are always to charity by the way.
NZ median house price from March to December ok for you?
Hi Yves,
Making a basic point about the current situation being more akin to stagflation rather than the inflationary environment of the 1980s is not being a "negative person".
But you are welcome to take your own advice and mind your own business at your slum motel or poncy apartment until you figure out how to be less conceited and condescending.
Have a nice day.
Just to clarify the point being made, mortgages are paid off from income. Everything else getting more expensive while your income stagnates does not reduce the burden of your mortgage. In fact, it increases it because there is even less money left over after other essential expenses.
It's not the 1980s redux.
I thought mortgage rates peaked in the early 1980's then started falling substantially throughout that decade? So not really like the 1980's at all because rates are going up now not down right?
Wouldn't the current period be more like the late 1970's with exploding mortgage rates.....but the only difference is is that we've got insane levels of debts against the housing market which we never had in the 1970's. And house prices fell quite considerably in real terms in the 1970's.
RBNZ will just do whatever IMF is suggesting.The OCR is still at emergency levels it should be around 4% if RBNZ does not do its job you will see NZD tumble and keep tumbling till it does what it’s told, this will make inflation go sky high and no coming back from there.
I'm in that position and am largely sitting on cash after reducing equity exposure since the end of last year. I'm ok to take a 7% or so percent loss on inflation at this time.
Central banks are behind the curve and are about to ramp up their inflation fighting pressure. People say markets go well during rate increases but I think that's too simple and that we've had an unusual amount of monetary support leading to unusual gains in asset prices. Slow and measured increases are easy for markets to handle but not so much fast and unexpected increases and the fed is also about to start selling back their bonds reducing liquidity in the system.
As long as there is inflation, the central banks aren't saving the day like in 2008 and 2020 yet I don't think most people recognise this difference and think that any house price fall will be limited, because it was in the past. It may well be limited, and if it is there still probably won't be gains for quite some time. Anyway based on my view of the probability of outcomes, cash isn't a bad place to be right now i think.
The gold rush comes from the city's largest employers always being flush with cash, even in these difficult times.
Inflation is good for Wellington's economy - hiring is up across town for more workers to sit around meeting tables and discuss how to spend extra revenue from GST and PAYE.
Robertson and Adern risking looking like greater fools if they consider reintroducing the fuel taxes if oil prices are even higher in three months time than they are now.
It won't go down at all well from a political perspective....so it might be hard to ever reintroduce them back to where they were...but who carries the loss long term? The government/tax payer? Or do we just run even higher deficits that risk even higher inflation, with reduced expenditure on roading infrastructure?
I think Labours on the back foot, they've made quite a few mistakes and they are coming home to roost now... wouldn't be surprised to see them lose next year due to the damage they've created
Convoluted covid rules which have damaged many businesses and livelihoods which are now being reversed at a time when covid deaths have been never been higher
Creating divisions in society with mandates
Ignoring protestors who were protesting the exact issues they are now reversing
Borrowing billions and spending on non productive wasteful spending which has now created record inflation and increasing the cost of living dramatically for everyone
Ignoring the bill of rights for local and overseas kiwis, who have massive uncertainty about whether the rules will change and if they can enjoy their normal rights as citizens or even come back home again (which is also a human right in NZ)
I think in general they have made life harder for most New Zealanders
When the govt clarified on the three different death stats I knew they'd lost the plot in communicating with a lot of the population. By the looks of it many people like yourself can't get their heads around it...
Even worse trying to get people to understand likelihoods and risk.
Deceased - Includes all cases that died who died within 28 days of being reported as a COVID-19 case. In some of these cases, the underlying cause of death may have been unrelated to COVID-19
That's the definition according to moh. Studies have estimated that up to 75% of deaths reported are unrelated to covid.
But the fear should be real aye.
They have 3 stats, which they've made very clear in multiple briefings. The 28 day one is the most live and lowest delay version they can use due to all of the delays involved with coronial inquests etc. This is standard practice worldwide to aid in modelling impact on the health system, its purpose isn't to show the number of underlying covid causes of death.
The underlying cause of death stats are there to see for anyone who wants to... It's not like they're hiding it. They just are very delayed, and backdated all the time. Far beyond what is useful for trying to deal with a pandemic in real time.
But yes it's all a big conspiracy to scare people... big govt out to get ya and make you stay at home and spend less money and make less tax revenue... oh. Well the power though, they want the power so that they can... make you stay at home and... spend less money. Hmm.
The thing is, I think our policy wonks are actually smart enough to see that we see their BS. It's a lovely moment to see the cringe in the press gallery at these times, - what to ask that avoids the no clothes situation. Given they are all on the payroll it is delightful to see them squirm.
The government has clearly walked away from the situation now and for me this is a real shame. I think they are unwinding all the good they did themselves in the first couple of years.
Of course who knows how bad COVID is in the country, perhaps we can do the ol' excess deaths analysis, what we do know for cast iron surety is that the official information flow is fake news.
nah, the IMF referred to "sound management" from this govt...your comments sound like the Republicans and NRA...the right to mess other people up...
and looking at the deaths without the "convoluted covid rules" we'd be seeing 25x the deaths(unvaxed making up roughly the same deaths of vaxed from 4% of the population)....and ignoring 4% of the people grandstanding is a no brainer...otherwise we'd have to listen to any old 4% mob...even 49% dont get to change the cannabis rules..
covid made life harder, same as every other country except our harder is nowhere near as hard as most, theres been no manual for this drama, and aside from a few glitches its been steady , communicated and based on best advice from people who know what theyre talking about.
It may yet crash and burn but a national right wing govt would have screwed us from the start..at least now we have a fighting chance
Well said, I don't know where this idea that the pandemic was mishandled here is coming from. I have family in Spain and UK, and friends in Oz, US (few different cities), Netherlands, Germany, Italy and India. When I've spoken to them during the pandemic and heard what they were facing compared to our situation I felt guilty about how good we've had it compared to them. Has it been easy? No. Has it been pleasant? No. But it has been miles ahead of any other response.
reduced expenditure on roading infrastructure
But it is broader than roading infrastructure. It was announced in Budget 2021 that non-roading projects will also receive funding from the National Land Transport Fund (NLTF).
Robertson will likely use his strong public balance sheet argument to justify borrowing more to build new assets. That is of course if the Treasury can capitalise the hundreds of millions to be spent on the public consultation process for new large-scale projects.
To be fair they might actually have a point (even if they have other outcomes targeted). If we do not keep our OCR in-line with the other nations we trade with we will be discounting our trade with them. I am all for being a good global citizen but surely we should be able to make out when fortune favours our commodity trade?
Orr is a joke. The OCR should already have been raised to 4% by now. The longer Orr waits to acknowledge reality, the higher he will be forced to go with the OCR later on. That he still does not get it is beyond belief, it would be comic if it was not potentially tragic.
Yes, recall that saying just prior the 2008 GFC when Dr Bollard was frantically, but belatedly, racking up interest rates to quell the then so called housing price surge. Pretty minor in comparison to the recent few years. Yep arrives at the party, too late, stays too long, does too much. As someone quipped here something like, somebody turned off the lights too.
IMF appear to have a better grip on NZ economic environment than our highly paid specialists, always amazed at the direction-less mumbo jumbo that comes out of them.
Tax was another area the organisation saw room for improvement in.
“Transitioning from relatively high corporate income tax to other sources, such as capital gains and possibly land taxes, would improve efficiency without reducing aggregate revenues,” it said.
Yeah. Feels like 'left' wing parties would crush you by saying you're making everyday homeowning kiwis pay for corporate greed and 'right' wing parties would crush you by saying you're punishing hard working kiwis who lifted themselves up by their bootstraps and bought houses when they were cheap.
They do, the party is called TOP. Their tax policy for the last 5 years is tax neutral and redirects investment into productive enterprises with a land or capital gains tax. It also does away with all the over calculation of what benefits everyone should get by just having a UBI and it's still tax neutral. Add in a 35b boost to infrastructure and R&D.
They are the only ones talking about a fundamental change to our tax system as well as our welfare system.
Indeed and I voted for them last time, however I think their tax policy as it relates to assets such as peoples houses is whacked and so bad as to make voting for them again a non-starter.
The last time I looked they still wanted people to pay a tax on a "paper gain" in the value of their houses. It's all a bit... special.
It can't be politically impossible but it appears quite complex to get right. Just throwing a tax on asset growth is one thing, but taxing the growth in the value of businesses that are creating value and employing people is a disincentive. I think a capital gains tax on assets that are only creating revenue through rental income might be a useful distinction?
"the RBNZ needs to make “significant increases” to the Official Cash Rate (OCR) in the near-term to get on top of inflation"
Yes, we need to take the medicine now and raise the OCR agressively now otherwise we will end up like Argentina etc
They had inflation at less than 10% in the 2000s... against a backdrop of low inflation globally.
The global energy supply is more concentrated than it was pre-Covid. Look no further than the US shale belt where the 2020 oil glut forced scores of independent players to sell their assets and operations to the cashed up global supermajors.
The world believes large corporations and petrostates will come to the party and drill more, when clearly the shared interests of these parties are for energy prices to remain higher for longer.
Inflation is definitely a huge issue. Give it 12 months and it will look very different, for the better I mean. Sadly house prices won't crash (long term) the wait for prices to crash advice will the be same as it has been for the last 50 years And tomorrow the sun will come up. We will still have online banking professionals that are the same professionals that could do open heart surgery because they have read some stuff on Google. Labour will get rolled next election, (God willing) and this news feed will still be a laugh a minute. Labour's mistakes are all finally coming to the surface , they can't hide behind covid any longer.
House prices won't crash because..... Luke83 is overleveraged, trapped in a buyers market while prices are tanking, greed controls him and cannot lower his price to meet the market. Insecure, afraid, arrogant, sensitive and just overall narcissistic. Just Saying !
It is exactly the opposite - with increases to interest rates almost all asset classes valuations fall - it is basic economics. This hits what you call "rich people" the most.
Social inequality increases with an ultra-loose monetary policy, and social inequality increases with rising inflation, which typically affects most lower economic status sections of the population. Just look at the redistribution of wealth from workers and the real economy to parasitic housing specufestors that we have seen in NZ as a result of the dumb ultra-loose monetary policy of the RBZ in the last few years.
And I can guarantee you that the fight to get back inflation under control will see the lower economic status sections of the population suffer quite a bit. There is no free lunch, and now it is time to pay the piper and to wake up from the delusion of unlimited, dirt cheap money.
Sorry, let me be more precise.
When I talk about 'rich people' - I am talking about the top 1% - where the real money and power is.
Rich people scream for interest rate rises because they want to see inflation squished very quickly. Why? Because inflation favours debtors and punishes creditors. Guess what? Rich people tend to be creditors amnd poor people have debts.
What you see during inflationary periods therefore is an increase in the slice of the wealth pie owned by everyday people, and a reduction in the slice of the pie held by the 1%. You can see this really clearly here. Look at the 1940s and 1970s. Historically (and mathematically), moderate-to-high inflation tends to reduce wealth concentration amongst the 1%. They don't like it.
Hyperflation in failed states is obviously a different issue - that screws everyone.
This was all foreseeable I don't know why some are surprised. Flooding economy cheap money which feed into the housing system to over inflate one asset type, nothing productive came from the billions. Reality for a lot of new builds are they be be worth 10-20 percent less on open market than they just paid. Building collapse by Year end inflation on building costs aren't under control.
Naughty of the IMF to suggest, yet again, that New Zealand introduce a capital gains tax, because they know that would require Jacinda Ardern's departure from politics.
But a national tax on the unimproved value of all land, yes. As long as it's called a 'rate' or a 'levy', it is the one asset tax not yet ruled out by the Labour Government. And it is the perfect tax:
1. Easy to implement, because it is just another line added to the existing local-body bill for city and regional rates.
2. Nicely focused, because it would temper the craze for real estate and help to divert investment to productive areas.
3. Fair, because it would affect every person and business resident in New Zealand, either directly as owners or indirectly as renters.
4. Just, because it would also force non-resident foreign investors to pay tax on their land holdings.
A national land tax should be used to finance a nontaxable universal basic income (UBI) that would more than recompense the poor for the cost of increased rates or rent, but not compensate those over-invested in land not used productively.
It's both shocking and unsurprising that the IMF, sitting in Washington, can make better policy recommendations than anybody in Wellington. Particularly the points on monetary policy: the fact that the RBNZ has not taken meaningful action in the face of strong inflation indicates that the central bank is wilfully ignorant of its mandate. I question why Adrian Orr still has a job.
Not shocking at all. Orr is incompetent. Predicting a 20% fall and then unleashing policy that created a 40% rise.. How much more evidence do people need. ' We didn't predict' and 'Couldn't foresee' are unacceptable excuses when the job is steering the economy based on prediction and foresight. Get rid of him.. stop giving him my taxpayers money for screwing things up. He IS the problem.
They talk. We thinking of saying this....what do you think? Tweak it like this. It will give the market more notice and time to adjust. I'll just get my speech ready.
if the IMF is as effective as WHO in the early stages of a pandemic then its gonna be too late anyway....
Sadly, our pathetic Poli's will only see what they want to see & hear what they want to hear. Nothing changes. It would be good if our RB did have some semblance of neutrality from the M of F but once again, Robertson's at the wheel & it would probably be a similar story if the Nats were in power. The mistakes, however, have been far & wide. The Fed rate is only at 0.25-0.50% when their inflation is 6.9%. Every civilised central bank worth its salt is currently way under their inflation line by 75% or more. They still see inflation as not lasting that long - is the only thing I can think of for them to continue to do this. Perhaps they'll be right this time? We can hope.
... has Covid-19 addled the brains of the IMF ... they're calling for a CGT when we effectively already have one , the 10 year brightline test ...
Plus ... property prices are drifting down ... there's precious little " gains " to be made here for 5 years or more...
... had they called for a comprehensive land tax , they'd have my attention 100 % ... and my respect ... tax the value of the land , annually ....
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