Higher taxes to cut imports forecast

Press, Volume CXV, Issue 34021, 10 December 1975, Page 2

Higher taxes to cut imports forecast

CV.Z. Freis Association; WELLINGTON, December 9. New Zealand’s main domestic economic concern next year will be to continue to cut imports, according to the Institute of Economic Research. In iu quarterly predictions, issued today, the institute says that this will require strong measures to hold down levels of demand, probably including an in-

crease in taxes, and may well be thought to require direct controls. The balance-of-payments difficulty and the measures needed to correct it mean that the internal economy will remain depressed in 1976, said the publication. Private investment and consumption could be expected to fall in real terms and the volume of outlays would fall by about 4 or 5 per cent over all. Production was likely to remain static. The institute thought that the rate of inflation was

likely to reduce somewhat, though continued international inflation and the devaluation in August meant that import prices were likely to increase about 14 per cent during 1976-77.

The publication noted that “New Zealand’s balance of payments deficit is of the order that will take some time unscrambling.” The deficit was $1347m, equivalent to 58 per cent of the total current account credits, in the year to the end of March. The average in the previous 20 years was only 7 per cent.

“We forecast that the deficit will fall to about 5820 m in the year ended March, 1976, and improve further to about ss2om in the year ended March, 1977,” said the institute. It forecast that wage and salary payments would increase by 13 per cent in 1976-77.

“We do not see any increase in employment and our forecast reflects an increase in wage rates. "This is rather less than our forecast of the rate of price increase during the present year and is based on the assumption that wages policy will be directed once again to securing a slower increase in wages than occurred in prices in the immediate past. “In view of the generally depressed state of the econ-

omy it is possible that employers will not in fact be prepared to concede increases of this order, but we assume that this possibility will not eventuate.”

Net farming income was predicted to increase by 13 per cent during 1976-77, and company income by 8 per cent. Though this would be a faster increase than in the present year, it would represent a fall in real terms. Private consumption spending was predicted to increase by only 9 per cent in value during 1976-77. As prices were forecast to rise by 13 per cent, this implied a volume fall of about four per cent in total and a fall of about six per cent a head. ‘The rise in consumption is noticeably slower than that in private incomes (13 per cent), the difference being accounted for by a sharp rise in direct taxes, which are assumed to increase by 21 per cent. “This change is primarily the result of increases in incomes and the effects of the progressive tax scale on the inflated income base. We have, however, built in a modest increase in direct taxes. “We have assumed that a major concern will be to reduce the level of the public sector deficit and the direct tax increase contributes to this (as could, alternatively,

lesser rates of increase in expenditure). “On the expenditure side, we have assumed that total Government spending will increase by 13J per cent (any lesser rise would imply a fall in real terms), which implies that total public spending will continue for a further year at its currently very high level of 40 per cent of gross national product.” But the institute added that it would be evident that its forecasts, faced with stresses inherent in the economy at present, were more than usually conjectural. Actual developments would be much affected by the broad shape of the economic strangy adopted in the next few months.