With Bill English likely to be Minister of Finance for another three years fiscal policy should be predictable if not somewhat boring. But boring fiscal policy is good, especially when it is combined with more stable monetary policy.
National's clear win in the election gives it the mandate to implement the reforms it signaled before the election (e.g. some reforms to labour law and the RMA, and cutting ACC levies from April 2016). And to implement more measures to get down new housing costs (e.g. sign Housing Accords with more councils).
With Bill English likely to remain Minister of Finance the primary focus will be on returning the government accounts to surplus and getting down net government debt from 27% to 20% of GDP.
English's fiscal prudence reduces the scope for increased government spending and/or tax cuts. But there is the possibility of personal tax cuts in April 2017 if the fiscal situation improves enough. The Minister has suggested the focus of potential tax cuts will be on low and middle income earners via adjustments to thresholds to offset the impact of pay increases pushing people into higher tax brackets.
In terms of labour market reform National plans to allow employers to opt out of collective bargaining if negotiations stall and to opt out of multi-employer collective agreements. It also plans to remove the rule that gives new workers the collective conditions for the first month, allow more flexibility around meal breaks and tighten rules around striking. Gross government debt in NZ is dramatically lower as a % of GDP than is the case on average in the major developed economies (see the chart). But this isn't reason for NZ to follow the imprudent policies adopted in the major countries that will pay the price of high debt for many years to come.
Prudent and somewhat boring fiscal policy combined with the more stable approach to monetary policy being adopted by Governor Wheeler should mean a somewhat more stable economic environment for businesses to operate in. Boring can be good.
The chart shows gross government debt as a % of GDP for New Zealand (black line) and the average for the US, UK, Japan, Germany, France, Spain and Italy (blue line).
Written by Rodney Dickens. Visit www.sra.co.nz to learn about SRA Ltd's services.