The Treasury has lowered its forecast for economic growth for 2013, citing volatile and more expensive global credit markets and the likely impact on commodity prices of a weaker global economy.
New Zealand's real gross domestic product growth is forecast at about 3 percent in the 12 months ending March 31, 2012, down about 50 basis points from its estimate in the Pre-election Economic and Fiscal Update. The Treasury's latest forecasts are in the department's briefing to the incoming Finance Minister, released today.
"Although New Zealand has so far avoided a severe economic shock, growth has been weak for some time and our large fiscal deficit and high external indebtedness continue to expose the economy to risks," Gabriel Makhlouf, secretary to the Treasury, said in the report, which was finalised on Nov. 25.
Among changes since the PREFU were an intensification of Europe's sovereign debt crisis, which had led to heightened financial market volatility and risk aversion.
The Treasury recommends a "wide and ambitious programme of policy reform" that would return the Crown to an operating surplus by 2014/15 and reduce net debt, excluding the NZ Superannuation Fund, to no more than 20 percent of GDP by 2020.
The nation's financial system could be strengthened by measures including requiring banks to hold more capital and the Treasury recommends amendments to the fiscal responsibility provisions of the Public Finance Act to add emphasis to macroeconomic stability and "fiscal structure dimensions".
It also suggests the government consider using tax reform to reduce distortions to New Zealanders' savings and investment decisions and encourage more saving. Retirement income provisions could also be reformed, it says.
The state sector should be down-sized, with more emphasis on actively managing cost pressures in health, welfare, education and justice.
The Treasury recommends reforms to the education system, including cost cuts and targeting early-childhood education funding at lower-income households. School teacher quality could be improved by measures including "consolidation of the school network."
The department also recommends reintroduction of interest on student loans.
Welfare reforms could include contracting out of work done by Work and Income, "where appropriate," alignment of benefit payments with work expectations and reducing the age of the youngest child at which work testing of solo parents would apply.
The Treasury also suggests tightening eligibility for the Supported Living Payment. A section of the recommendations of the Better Public Services Advisory Group Report was deleted from the public version.
The Treasury suggests measures to make New Zealand's business environment more internationally competitive, including cuts to personal and company tax , improved relationships with Australia, the US, China and India.
Reforms of the Resource Management Act to allow more efficient management of natural resources including "market structures to facilitate more efficient use of water" and reduced costs of the Emissions Trading Scheme.
It also urges continued investment in infrastructure and what it calls a "realistic" longer-term recovery strategy for Christchurch.