NZ: New Government’s agenda takes shape – Westpac

In New Zealand, Labour’s planned fiscal stimulus and minimum wage increases will, on their own, put upward pressure on the OCR, suggests the research team at Westpac.

Key Quotes

“Labour’s other policies, including plans for free tertiary study and policies that will dampen the housing market, will weigh on inflation. In terms of fiscal policy, the new coalition looks set to spend more than the previous Government, only partly funded by extra tax. Spending will be weighted towards education and health.”

“Both Labour and NZ First campaigned on reductions in net immigration. However, net immigration has already turned. A tightening of immigration regulations would reduce our net immigration forecast further which would reduce our GDP forecast.”

“The new Government has announced a review of New Zealand’s monetary policy framework. This is likely to result in two key changes. First is a broadening of the factors that monetary policy focuses on, with the Government proposing a shift to a dual mandate of maximising employment and stabilising inflation. The new Government is also proposing a shift from the current single decision maker model to a committee, with Labour proposing a mix of 4 internal and 3 external members. Neither change likely to lead to substantially different policy decisions.”