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Strong govt books offer scope to meet infrastructure deficit: IMF

Tuesday 17th April 2018

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The International Monetary Fund gave an optimistic opinion on New Zealand's economic outlook, with the pace of growth seen staying around 3 percent, and says the strong Crown books offer enough headroom to meet the needs of an expanding population. 

The global body of 189 member countries, set up to foster international monetary cooperation, says New Zealand is enjoying a "solid economic expansion" in the concluding statement of its regular 'Article IV mission review', with growth set to remain near or above potential. The IMF said increased government spending will offset slower residential investment and drought-affected agricultural exports. Gross domestic product expansion will stay near 3 percent in the near term. 

The IMF statement said the Crown's fiscal position was strong and "provides space to accommodate the needs from strong economic and population growth", with increased spending on infrastructure able to be ramped up further if a bigger-than-expected tax take turned out to be structural. 

Mission chief Thomas Helbling told a briefing in Wellington that efforts such as the KiwiBuild programme and the government's Urban Growth Agenda were useful steps to addressing under-funding in infrastructure, much of which had been tied to housing, although the capacity to deliver has lagged behind those plans. 

Helbling refused to be drawn on questions about whether the government's Budget Responsibility Rules, which target net Crown debt at 20 percent of GDP by 2022, were unduly restrictive, given the country's numerous infrastructure needs and the fact that New Zealand's public debt was already low by international standards.

There was a case for being prudent about government debt levels, although New Zealand's position remained "comfortable", he said.

The 2017 construction pipeline report prepared by the Building Research Association of New Zealand and Pacifecon shows $309.7 billion of work is projected between 2015 and 2022, of which $177.8 billion is in residential property, $65.7 billion in non-residential building, and $66.2 billion in infrastructure. The New Zealand government has signalled it expects to spend $42 billion over the next five years, spearheaded by the KiwiBuild programme. 

IMF economist Dirk Muir said the New Zealand government is also weighing up where there has been underinvestment in infrastructure and that there are ways around that, such as shifting spending into public transport to address a problem like traffic congestion, as opposed to building a new road. 

"There are certain ways to make those gaps less important by shifting how you do the investment," Muir said. 

His comments echo a sentiment shared by Transport Minister Phil Twyford at yesterday's summit on the government's draft policy statement on transport, where the minister told the audience the new programme sought better value for money in the proposed land transport management programme, with increased spending on local and rural roads which have heavier traffic flows than urban motorways. 

(BusinessDesk)

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