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Labour market the key as growth takes hold - BERL

“Labour market is the key, as growth takes hold”, say BERL forecasters

The key element driving the economic growth over the last three years of a reasonably stable economic environment has been the emergence of a dynamic labour market. This has created jobs at a rate of 40,000 to 50,000 a year, and has encouraged more people, especially Polynesian and older people, back into the work force. It is also encouraging people to stay in, or come back to, New Zealand - especially the higher-skilled professional and technical people.

“These changes in job patterns, as well as the migration inflow, together with the net natural increase, could continue to expand the labour force by about 2.5% per year”, according to Kel Sanderson, BERL Managing Director. “With this level of resource renewal and revival, it is not too much to hope in a reasonably smart economy that labour productivity will be improving by at least 1%pa - probably more”, explained Mr Sanderson.

Overall GDP is thus expected to grow by 3.5% to 4.0% pa over the forecast horizon.

Continuing growth ensures that the government’s revenue increase will more than cover the planned pre-funding of NZ superannuation as well as higher spending in voracious health and skill-providing education sectors. A Finance Minister with a growing surplus need never lack advice, according to BERL and it suggests, tentatively floated in previous issues, a cut of $1.3bn from taxation revenue in the 2004/05 year. This could be in the form of either the GST rate back down 10%, or some mix of lower company and personal tax rates.

While the BERL economists paint a positive picture for a moderate (if not better) period of expansion and prosperity, they do acknowledge a serious down-side scenario due primarily to turmoil elsewhere.

“There is an ‘ugly’ scenario, whereby world uncertainties and hostilities conspire to shatter global investor confidence and lead to a prolonged period in the economic doldrums. We are not forecasting that scenario, but such a prospect is ugly indeed - though one in which NZ would not be alone”.

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