NZ Finance Minister Willis Sees Return to Growth in 3Q

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00:00I do want to start with New Zealand's growth figures and growth outlook.

00:03Of course, the economy contracted nine-tenths of 1% in the second quarter.

00:07That was a lot more than anyone was expecting.

00:10Why do you think the economy is so fragile?

00:13Well, look, we know with seasonal variation since COVID

00:17that those numbers have been jumping up around

00:20and there could be some correction to that figure at a later update,

00:24particularly given some of the technical factors in that measure.

00:28But we were expecting a negative second quarter.

00:31And what we saw is after six months of strong growth and recovery prior to that,

00:36including a 0.9% positive rate in the first quarter of the year,

00:41that on the 1st of April, when the Trump tariff announcement occurred,

00:45that really knocked confidence out of a lot of New Zealand businesses and investors

00:49who looked at that global uncertainty.

00:52And for a global trading nation, really worried about where that would go.

00:56We're now in a much more settled environment.

00:58We know what New Zealand's tariffs are,

01:00and we've watched our exporters adjust very quickly to that new reality.

01:04And many of the worst side scenarios that had been predicted haven't occurred.

01:09And so we're confidently predicting that growth will have returned in the third quarter

01:13and should accelerate in the fourth quarter,

01:15particularly helped along with an official cash rate that continues to fall.

01:19Yeah, I do want to... You mentioned business confidence there,

01:22and the latest business confidence report showed firms planning to reduce investment.

01:27How much of a concern is that for you?

01:31Well, we've worked as a government in this year's budget

01:35to provide more impetus for business investment

01:38through the Investment Boost Tax Policy,

01:41which offers a 20% write-down on asset investments against tax bills.

01:47And that's directly intended to be a tax incentive to encourage investment.

01:52And firms have certainly said that that is something

01:54that will make some business cases stack up that wouldn't otherwise.

01:58And as we look ahead with a lower official cash rate,

02:01with inflation now having stabilised back in band,

02:04and a government that is ultimately pro-business, reforming, deregulating,

02:09we believe that's creating the conditions

02:10in which businesses will feel more confidence over the coming months.

02:13All right, so you're expressing some optimism,

02:17but of course we have the RBNZ, the Reserve Bank,

02:19cutting rates by 50 basis points last week,

02:22saying it's open also to further reductions.

02:25Does that suggest to you the central bank doesn't share your optimism,

02:28that it's worried the economy won't recover?

02:31Well, I think that was the Reserve Bank doing its job

02:35of reacting to data in the second quarter

02:37that, as you pointed out, was much more negative than had been forecast,

02:41and quite different from what they had forecast

02:44and what had informed their earlier monetary policy path.

02:48So the bank is reacting accordingly,

02:51and of course with that lower official cash rate,

02:54that in itself will be an inject for the economy,

02:58and that's, in my mind, monetary policy doing its job.

03:01As a government, we're working alongside the Reserve Bank

03:04by ensuring that our fiscal settings give them that room to move

03:07on interest rates by ensuring that we're not overstimulating the economy

03:11and that we have a path of fiscal consolidation.

03:15And so, look, the Reserve Bank itself is continuing to forecast

03:18that there was growth in that third quarter,

03:20and they agree with our Treasury assessment

03:22that growth will forecast over the coming months,

03:25getting back up to very healthy levels next year.

03:27Well, Treasury will deliver you another forecast in December

03:32in its half-year update.

03:33What are you expecting in terms of that forecast?

03:36Do you think it could be cut,

03:37and what would that mean for tax revenue?

03:42Well, look, so far, actually, tax revenue is holding up.

03:46We released our one-year-in-review financial statements yesterday,

03:52and they demonstrated that the tax take was actually up

03:54on what Treasury had forecast at the budget that it would be.

03:58In fact, all of the indicators in that update, essentially,

04:03were a little better than we were predicting.

04:05Our core fiscal measures that the government is targeting

04:07around net debt, net debt actually stayed steady.

04:11When we look at the deficit, that was smaller than we were expecting,

04:15and spending as a proportion of GDP was also smaller.

04:18We're on target to reduce that over time.

04:20So, at this juncture, Treasury's updates,

04:23in terms of the real data rather than the forecast data,

04:26are, as I say, running positively relative to forecast.

04:31Obviously, the longer-term goal here

04:33is to get the budget back into surplus.

04:36Can that be achieved by 2028?

04:38And if not, when do you think it could be achieved?

04:43Well, that remains our fiscal goal,

04:46and we do think that will be achieved.

04:49In our latest budget,

04:51we were getting to surplus

04:53out a year beyond when we would like to.

04:57We've kept that goal of doing it a year earlier.

04:59And in order to achieve that,

05:01we're following a path of fiscal consolidation.

05:03We've had very low operating allowances.

05:05That's the discretionary spending that the Crown does.

05:08Very low relative to where they have been historically.

05:11And we've supported that with a savings programme

05:14that so far has delivered

05:15around $43 billion worth of savings.

05:18We want to get spending back down to 30% of GDP,

05:21where it's broadly sat historically for New Zealand.

05:24It leapt up over 34% during the COVID era.

05:28And we think it's a much more sustainable position

05:30to get that back down.

05:31We've charted a path that gets us there,

05:34and we're confident that that surplus path

05:36is achievable with fiscal discipline.

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