IMF supports efforts to counter inflation
Finance Minister Michael Cullen today welcomed the latest report on New Zealand by the International Monetary Fund, which praised the Labour-led government's efforts to lift savings and explore other ways to take the pressure off interest rates and the dollar.
The IMF Staff Report, released this morning, commended New Zealand's sound macroeconomic policies in challenging times, noting that current pressures in the economy reflected global conditions.
"However, it is important we do more to relieve pressure on the economy today. That is why it is pleasing that the IMF is supporting our efforts to explore new options that might work alongside monetary policy to address short term pressures in the housing market.
"In the IMF's view various tax and prudential measures deserve further scrutiny and this is consistent with the government's view. Our proposal for the Financial and Expenditure Select Committee to review the operation of monetary policy is aimed at ensuring we are using the best options we have available, and in the best way."
The IMF points out we are not alone in facing currency pressures, noting the importance of the "carry trade" on the direction of the New Zealand dollar. The Fund said that global investors "hungry for yield" are pushing the exchange rate to over-valued levels, putting exporters under severe pressure.
It called for continued vigilance to possible shocks. "That's why I have been urging responsible fiscal policies for so long," said Dr Cullen.
"This is critical as we face challenges today and ahead from an ageing population. The IMF assess the long-term challenges as "manageable" and welcomed our efforts to increase savings through KiwiSaver.
"Clearly, the IMF is encouraging fiscal restraint so we can better cope with today's imbalances and also to better prepare us for the challenges ahead. This is why the excessive loosening of fiscal policy promised by the Opposition through multi-billion tax cuts, coupled with almost daily calls for new spending, would be so reckless.
"They would not only have aggravated current imbalances, but would undermine our ability to prepare for the future.
"I should note that the Budget will show that the fiscal stimulus is substantially smaller in 2006/07 than forecast at the Half Year Fiscal Update and that over the next two years, the stimulus is approximately what was forecast at the time of the update. Strong revenue flows mean the government is taking more demand out of the economy than it is putting in.
"I should also point out that planned investments in infrastructure and the business tax package, while stimulatory in the short term, add to the productive capacity of the economy and so reduce inflationary pressures over the medium-term."
The IMF Staff Report, released this morning, commended New Zealand's sound macroeconomic policies in challenging times, noting that current pressures in the economy reflected global conditions.
"However, it is important we do more to relieve pressure on the economy today. That is why it is pleasing that the IMF is supporting our efforts to explore new options that might work alongside monetary policy to address short term pressures in the housing market.
"In the IMF's view various tax and prudential measures deserve further scrutiny and this is consistent with the government's view. Our proposal for the Financial and Expenditure Select Committee to review the operation of monetary policy is aimed at ensuring we are using the best options we have available, and in the best way."
The IMF points out we are not alone in facing currency pressures, noting the importance of the "carry trade" on the direction of the New Zealand dollar. The Fund said that global investors "hungry for yield" are pushing the exchange rate to over-valued levels, putting exporters under severe pressure.
It called for continued vigilance to possible shocks. "That's why I have been urging responsible fiscal policies for so long," said Dr Cullen.
"This is critical as we face challenges today and ahead from an ageing population. The IMF assess the long-term challenges as "manageable" and welcomed our efforts to increase savings through KiwiSaver.
"Clearly, the IMF is encouraging fiscal restraint so we can better cope with today's imbalances and also to better prepare us for the challenges ahead. This is why the excessive loosening of fiscal policy promised by the Opposition through multi-billion tax cuts, coupled with almost daily calls for new spending, would be so reckless.
"They would not only have aggravated current imbalances, but would undermine our ability to prepare for the future.
"I should note that the Budget will show that the fiscal stimulus is substantially smaller in 2006/07 than forecast at the Half Year Fiscal Update and that over the next two years, the stimulus is approximately what was forecast at the time of the update. Strong revenue flows mean the government is taking more demand out of the economy than it is putting in.
"I should also point out that planned investments in infrastructure and the business tax package, while stimulatory in the short term, add to the productive capacity of the economy and so reduce inflationary pressures over the medium-term."