April 2019

New Zealand’s economy has plenty going for it, but ripples from the global business slowdown could end up hurting the country’s private sector.

First, the good news. New Zealand’s unemployment rate is at its lowest in the past 10 years, letting the bulk of the country share in these prosperous times. However, some companies may face difficulties in the future, due to this same trend. The shortage of unemployed workers makes it harder for businesses to find new and qualified employees for their vacant positions, which in turn gives those skilled workers more power in terms of bargaining for their desired positions. In these times of rapid technological advancement in business, a failure to find qualified hires may mean a failure to keep up with the changing market.

The global economic slowdown may also be affecting the country’s business prospects. According to a statement published by the Reserve Bank of New Zealand, the Official Cash Rate will remain unchanged at 1.75%, in response to economic struggles overseas and a simultaneous slowdown in domestic spending. Indications suggest that the next move may be to reduce the Official Cash Rate.

The statement also mentioned that “The global economic outlook has continued to weaken, in particular amongst some of our key trading partners including Australia, Europe, and China. This weaker outlook has prompted central banks to ease their expected monetary policy stances, placing upward pressure on the New Zealand dollar.”

Indeed, almost of all the key players in worldwide trade are suffering as a result of the slowdown, and are gearing up for the worst to come in the near future. “The risk of a more pronounced global downturn has increased and low business sentiment continues to weigh on domestic spending,” the statement also read.

Meanwhile, the scheduled Capital Gains Tax is going to take effect on 1st April 2021, and some believe it will cause “a lot of pain for little gain”. The Capital Gains Tax is expected to involve a massive $1.6 billion in compliance costs, $210 million for bureaucratic costs, and $1.5 - $4.2 billion of other costs over five years.

Kirk Hope, Tax Working Group member and Business New Zealand chief executive, does not support the idea of the Capital Gains Tax. "Based on evidence from Australia,” he said, “CGT compliance costs could be as high as 16 per cent of tax revenue, we have assumed 10 per cent on the basis that NZ's CGT is less complex." He then added, "We wanted to produce as realistic a picture of what the costs for business and the economy would be as a result of simply complying."

A spokesman for Finance Minister Grant Robertson said that the government would give additional information about the situation later in April. They also stated that any tax regime changes would be responsive to influence from voters during next year’s election.

Ultimately, whatever decisions New Zealand makes will need to be placed in the context of the coming months and years of the global trade environment. As we await news about China, the US, Brexit, and any number of other major players and issues, New Zealand’s main task is to get the most out of its recent economic successes, and put itself in a good position for further advances in the future.

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