No. 4

LOWER UNEMPLOYMENT PEAK EXPECTED

Unemployment data this week is expected to show a lift in the number of jobless. However there are some glimmers of hope on the horizon.

In the Budget in May, Treasury was predicting unemployment to peak at 8 per cent in the second half of next year. There are strong indications now that it will peak lower - possibly around 7 per cent - and sooner than previously thought.

This is due to a combination of factors - better performance by our trading partner economies, a lift in commodity prices and the Government's continuing focus on protecting jobs. While this is encouraging, I'm concerned about the loss of any job, which has a profound effect on workers and their families. That's why it is critical we get a step change that permanently lifts our economic performance. That will be the focus of Budget 2010. [Click here to watch my latest video briefing on this topic.]

THE DOLLAR

The Government is acutely aware of the impact the high dollar is having on our exporters and our recovery. You can read my blog on the subject here.

Clearly, the dollar is stronger than we would expect at this point in the economic cycle - due mainly to the weakness of the US dollar and the Sterling. The best action Government can take to avoid putting added pressure on the dollar is to keep its own house in order and ensure that others have incentives to do the same.

We have a clear plan to control public spending and debt, reducing pressure on both the exchange rate and interest rates. We are also firmly focused on lifting New Zealand's rates of productivity, which have languished in recent years. This will help exporters become more competitive and give them to confidence to invest and create sustainable jobs.

CROWN ACCOUNTS

The annual financial statements are a reminder that, while there are some promising signs that the recession is easing, there remain some significant challenges.

The $10.5 billion deficit to the year to June 30, 2009, was larger than forecast in the Budget in May, as tax receipts fell, spending increased sharply to support the economy through the recession and several Crown investment portfolios - like the Super Fund - sustained significant losses.
Faced with expected deficits of $10-12 billion over the next four years, it means we are going to have to borrow about $250 million a week on average over that period. That is why the Government is focused on keeping a tight rein on spending for the foreseeable future.

REVIEWING THE TAX SYSTEM

There has been a lot of interest recently in the Tax Working Group. The group - led by Victoria University's Centre for Accounting, Governance and Taxation Research, is looking at potential improvements to the tax system.

The aim is to see if there are changes that can simplify the system, improve fairness and lift economic growth without increasing the overall level of taxation. The group, which is free to look at any aspect of the tax system, will provide the Government with a report in December.

Last month I gave a speech to the Institute of Chartered Accountants in which I made it clear that any proposed changes would have to meet some crucial tests if they were to be seriously considered by the Government. Equity and fairness will be key considerations alongside benefits for the economy and for households.

REGIONAL EXPORTS



As Minister of Finance, I'm a firm supporter of regional development, so I was very pleased last week to see the conclusion of a major log deal between Canterbury and Southland. The log in question was the Ranfurly Shield. Attending the victory parade in Invercargill last week, it was obvious the victory has given Southland a big lift. Hopefully this boost in confidence will help underpin the recovery in the region.

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