Provinces signal a slowdown in economy: Cullen

By KEVIN TAYLOR


The economic slowdown is starting to be felt in provincial New Zealand, says Finance Minister Michael Cullen.

He told a parliamentary committee yesterday that slowdowns tended to show first outside the main centres.

"Some colleagues are reporting signs in provincial New Zealand of the expected slowdown just beginning to bite.

"We have certainly seen that in things like the housing numbers and building consents ... they are beginning to show some fall-off."

The comment is in line with economic commentators who have been predicting growth to start falling away next year.

Dr Cullen said he had argued for a long time that economic turning points - both upturns and downturns - were seen earliest in provincial New Zealand.

He said the Government still expected a "soft landing" for the economy, although the risks to it were largely international.

These included whether oil prices stayed at high levels for a long time, uncertainty about the strength of the United States recovery, and whether Japan could sustain a stronger growth rate, given its debt problems.

Some recent forecasts from bank economists see growth in gross domestic product (GDP) slowing next year to about 2 per cent - under half what it is now.

Westpac predicted this month that growth would slow to 2 per cent by the end of next year, with the slowdown hitting overall from the second quarter.

Dr Cullen said if the slowdown was faster than anticipated the Government was in a strong fiscal position and its books could wear the impact without worry.

He also told the committee that across-the-board tax cuts were not off the agenda but there were other things the Government was doing with tax policies that were more likely to generate economic growth.

Questioned by National's finance spokesman, John Key, about the possibility of across-the-board tax relief, Dr Cullen said: "I would never go as far as to say it's off the agenda."

But he added that in the corporate tax area there were higher priorities, such as tax simplification and changes to depreciation rules, that would deliver more to most small- to medium-sized businesses.

Asked specifically if he would cut the company tax rate, Dr Cullen said that was not his priority.

Mr Key said later that taxpayers would have more chance of "sighting Elvis" than seeing a tax cut under this Government.

Meanwhile, Dr Cullen told the committee that next year's Budget would be aided by increased tax revenue from the banks through soon-to-be-introduced legislation.

"We have come to a surprisingly consensual understanding with the banks around their future tax liabilities ... and that will increase the level of fiscal headroom the Government has available."

The Government said last month that it should gain about $360 million a year in tax from banks by closing loopholes they have been exploiting.