The Treasury’s Pre-election Economic and Fiscal Update (PREFU) provides another encouraging indication that New Zealand’s economic recovery is taking hold, says the EMA.
EMA Head of Advocacy Alan McDonald says the improved outlook and stronger tax revenue suggest economic activity is beginning to strengthen, although conditions remain difficult for many businesses.
“The PREFU is another tick in the box showing that the recovery is real, but steady is the operative word,” says McDonald.
“One of the more encouraging signals is the stronger tax take. While no business welcomes paying more tax, higher company tax and GST revenue can indicate that businesses are performing better, employing people and generating more economic activity.
“That does not mean every business is doing well. Conditions are still tough across many parts of the economy, but the overall direction is more positive than it has been.”
Alan McDonald says Treasury’s forecast of economic growth around the mid-2% range would represent a meaningful improvement, provided the recovery can be maintained. He cautions, however, that forecasts are based on current conditions and remain vulnerable to domestic and international disruption.
“Businesses need stability and certainty. A sustained period of moderate growth would be much more valuable than a short burst followed by another setback.
“Achieving that will require continued discipline over government spending and a strong focus on policies that lift productivity, unlock investment and make it easier for businesses to grow.”
There are also emerging signs of improvement beneath the headline figures, including recent job creation and increased activity in parts of the construction sector. However, the recovery will need to broaden further before businesses and households feel its full benefit.
McDonald says it is too early to commit future revenue gains to new spending or tax changes.
“The better numbers create options, but we should be careful about spending money before the stronger revenue is firmly established.
“The priority should be protecting the recovery, maintaining fiscal credibility and creating the conditions for businesses to invest, hire and become more productive.”