Treasury downplays expectations

TRACY WATKINS
Last updated 05:00 30/01/2014

Relevant offers

Politics

Mum takes DHB to court for failing to prevent her son's death in the mental health unit English punts talk of electoral deals, Maori seat strategy, into the stands Hone Harawira gets clear Te Tai Tokerau run for Mana not running against Maori Party in other seats Bill English slams NZ Super Fund for chief executive's 36 per cent pay increase 'Doing it for greed' Labour leader Andrew Little on Cadbury factory closure Te Atiawa opposes land bill but keen to be part of better solution Rangitikei MP Ian McKelvie looking forward to election campaign While Christchurch burns, Wellington talks Willie Jackson: The health of our democracy is at risk with the Electoral Commission failing voters Bill English top of preferred PM rankings, but National drops in latest poll

Treasury has delivered a thinly veiled warning to politicians not to ratchet up election year expectations on the back of a surging economy.

Finance Minister Bill English also signalled yesterday that with the recovery under way, expectations should be shifting away from government spending to pay rises – and said workers would feel entitled to better than zero pay increases after several years of pain.

New Zealand has been labelled a rock star economy internationally on the back of a growth rate forecast to be among the highest in the developed world.

Treasury’s chief economist Girol Karacaoglu is cautioning, however, that the recovery could look more like a one hit wonder if the brakes come off government spending.

‘‘It’s no secret that New Zealand is in an enviable position.....rock star economy seems to be the phrase on everyone’s lips. That makes great headlines but it only really reflects our short term outlook.’’

Some of the risks identified in Treasury’s December update had already begun to materialise, including stronger domestic demand, and the global environment continued to be volatile, Karacaoglu said.

‘‘We need to learn the lessons of the last decade [and] show restraint as the economy hits a new gear.’’

A spike in Government spending risked driving interest rates up higher than they would be otherwise and this would put more pressure on the exchange rate, undermining exporters.

Karacaoglu’s warning comes as politicians start rolling out their election year promises, including Labour’s $500 million plan for a baby bonus and a boost to early childhood education. National has also rolled out new spending promises, including a $369m boost to teaching.

Announcing the budget date of May 15 yesterday, English said the focus had now shifted from managing a recession to managing a growing economy.

‘‘We want to avoid the mistakes of the mid-2000s when in a growing economy government spending took off, housing prices took off again and we ended up pushing ourselves into recession.’’

But he acknowledged that people were looking to share in the benefits of growth – including through pay rises.

‘‘I think a lot of households will be looking for benefits through more job security, which they haven’t had and through pay rises, which households haven’t had much of through the last three or four years.’’

Many workers had given away overtime, or taken pay cuts during the recession, and there would be an expectation ‘‘particularly for those people with skills that are in demand that they will be doing better than zero pay increases’’.

Ad Feedback

A survey by recruitment firm Hudson NZ suggested nearly six out of 10 employees were seeking new roles with better pay a top reason for moving.

English said workers could see the signs that the economy was on the up.

‘‘I think businesses are going to find that as they need to retain skilled people and be attractive places to work then increased pay is going to be part of that package.’’

English said his sixth budget would be ‘‘predictable’’ and the Government would have to keep a lid on spending to avoid putting pressure on interest rates.


- Fairfax Media

Special offers
Opinion poll

Should the speed limit be raised to 110kmh on some roads?

Yes

No

Vote Result

Related story: 110kmh limit moves closer

Featured Promotions

Sponsored Content