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Finance minister resists calls for fiscal stimulus

Wednesday 4th September 2019

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Finance Minister Grant Robertson says he will spend if necessary but for now he is resisting calls to use fiscal policy to stimulate New Zealand’s economy. 

Economists have expressed concerns about the state of the economy as cooling domestic growth and international headwinds prompted the Reserve Bank to cut the official cash rate by 50 basis points to 1 percent last month in an effort to encourage more investment. 

“The signal I am trying to send quite clearly is that if we see further deterioration we will respond accordingly,” Robertson told an Auckland crowd at the inaugural Bloomberg address today.

“And that is a statement that has been within the budget responsibility rules from day one. If there is a significant shock.”

In May, Robertson gave himself more flexibility by announcing he would change the government’s net debt target from 20 percent of GDP to between 15-25 percent by 2021-22. The move means the government can fund more spending through debt if it chooses. 

Robertson said the government already made a decision to significantly spend more in Budget 2019, and in that way, the government has already recognised the issue of a slowing economy.

That budget only took effect from July and plans $10 billion of new capital spending and transport spending of $17 billion over four years, which will have a significant effect on the economy, the minister said. 

“There is a significant amount of stimulus in that budget,” he added. 

“Some of the issues we had faced were through capacity constraints and we’ve been working through those, particularly with infrastructure,” he said. 

Robertson did not rule out announcing additional spending in the half-year budget update expected in December. 

He acknowledged that monetary policy under Reserve Bank governor Adrian Orr and fiscal policy must work together. He indicated that New Zealand is in “uncharted territory”.

“I think Adrian's quote was ‘we live in very very very interesting times'. And that’s a challenge for him.”

The finance minister noted that other countries around the world have worked with negative interest rates for some time. 

“The way it is played out is varied. It doesn’t mean they all become worried and concerned about people putting money under the bed, because it doesn’t get passed onto the run of the mill customers.”

The good news for New Zealand, Robertson added, is there is still more room for rates to fall before heading into negative territory. 

(BusinessDesk)

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