By Lucy Craymer
WELLINGTON (Reuters) – A National Party-led government has pledged to cut government spending in New Zealand, cut taxes and return the government’s balance sheet to surplus. But since the coalition agreements still need to be clarified, some questions about the country’s economic policy remain unanswered.
WHAT DO WE KNOW?
In the parliamentary elections on October 14, the center-right National party won the largest share of the vote. With its preferred coalition partner ACT New Zealand, it has a wafer-thin majority of just one seat. This could be undermined when the final vote is counted.
National is speaking to both ACT and New Zealand First to get the numbers to form a government.
“All three want to reduce government spending, generate a surplus again and reduce taxes. All three want to restore the tax deductibility of interest expenses on residential real estate investments, which is expected to immediately increase investor interest in residential real estate,” ASB chief economist Nick Tuffley said in a note.
GOVERNMENT DEBT
The pre-election fiscal update predicted the government would record three more years of deficits, partly due to the deteriorating economy. Both National and ACT have committed to maintaining this surplus trajectory, but aim to reduce the size of the deficits in each of these three years.
To that end, National plans to cut public service spending by around NZ$600 million (US$350 million) a year, while promising to increase spending on frontline staff in the health and education sectors.
ACT wants to go even further. She announced that she would ax a number of ministries and cut around 15,000 public sector jobs, reducing the number of employees to 2017 levels.
TAX REDUCTIONS
National plans to allow foreigners to buy homes worth more than NZ$2 million, but tax those purchases at 15%. This is forecast to generate NZ$700 million more revenue annually. This has been hotly debated by economists in New Zealand.
Both ACT and National want to reintroduce a tax break that will allow property investors to deduct some of their mortgage interest costs from the rental taxes they pay.
“A looser housing policy could provide some impetus to the property market and therefore potentially inflation and interest rates. But significant headwinds limit the upside,” ANZ economists said in a note, citing high mortgage rates and affordability constraints.
CENTRAL BANK
Both National and ACT are keen to refocus the central bank solely on inflation rather than having a dual mandate that takes employment into account.
PARTY DIFFERENCES
Differences between the parties are negotiated in coalition negotiations. Different policies include immigration, raising the age at which people receive a pension and limiting foreign investment in New Zealand.
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($1 = 1.7144 New Zealand dollars)
(This story has been re-archived to correct the date to October 19.)
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