New Zealand is in a “fragile” state and needs to get its public finances back in order before developing a stronger economy, Bloomberg reported citing the country’s Prime Minister Christopher Luxon.
In his first State of the Nation address since taking office on Sunday, Luxon stated that government spending has increased by 84 per cent since 2017 and that debt has increased from NZ$5 billion ($3 billion) to a “staggering projection of well over NZ$100 billion.”
“I have to level with you New Zealand and say — the state of the nation is fragile.”
The PM warned that “there will be more where that came from, I can tell you” while highlighting the NZ$7 billion in savings provided by Finance Minister Nicola Willis in a mini-budget in December.
The coalition of three centre-right parties that make up Luxon’s government has pledged to address the cost-of-living crisis by cutting back on unnecessary spending and shifting the central bank’s primary focus back to price stability.
It makes the case that the Reserve Bank can start lowering borrowing costs and bringing inflation back to target with the support of a strict fiscal policy.
“Strong public finances aren’t enough of course to deliver a strong economy in their own right — but they are a critical pre-requisite,” Luxon said. “We can’t build infrastructure if we can’t be trusted to borrow money.”
In addition, he demanded “a return to the orthodoxy of tight budgets” along with a resolute effort to maintain or bring the books back into surplus.
“Inflation has stayed high – the cost of living crisis isn’t over yet, with inflation here higher than Australia, the UK, the US, Canada, Japan and the EU,” he stated.
The speech attempted to set up a political framework for the administration’s first year in power. In an attempt to reap the benefits before the next election, it is pushing for difficult decisions early in the electoral cycle.
Speaking extensively on welfare reform, Luxon emphasized the need to address the growing number of New Zealanders receiving long-term benefits.
“Now that won’t be popular with everyone – but it is necessary,” he said. “More spending, more borrowing, and more taxes isn’t a pathway to prosperity, it’s a recipe for more of what we’ve seen from the last few years. Rampant inflation, higher interest rates, and an economy going nowhere fast.”
