Inflation pressures uncomfortable, says Cullen

Michael Cullen

New Zealand's inflationary pressures remain "uncomfortably strong", says Finance Minister Michael Cullen.

But the weaker economy was simply a cooling in preparation for another period of strong growth, he told the Tauranga Chamber of Commerce yesterday.

The Treasury had forecast gross domestic product growth to bottom out around 1 per cent in the year to March next year. "Despite the slowdown, the labour market remains tight," he said.

Last week's surprisingly robust employment data would ensure a continuation of strong growth in household incomes. "Although the recovery in the global economy appears to have peaked for the time being, growth among our major trading partners will remain stronger over the next few years than it was during the first half of the decade."

Businesses were confident about making long-term investments, as evidenced by the announcements on the $1 billion Kupe gasfield development.

"And net migration, which was one of the factors that sparked the downturn, appears to have bottomed out at a net gain of about 10,000 a year."

In light of all of that, Cullen said the Treasury forecast economic growth to rebound to 3.3 per cent in the year to March 2008.

Reducing the company tax rate from 33 per cent to match Australia's 30 per cent was "certainly an option".