Orthodox policy by Labour?

Press, 3 September 1984, Page 28

Orthodox policy by Labour?

The Laboar Government’s orthodox economic policy stance is expected to prevail over the next 18 months, according to the independent economic forecasting group, BERNZ. It predicts that the Government will soak up the excess liquidity through tenders and savings bonds and reduce growth in the money supply to around 10 per cent per annum (it is currently running at 15 per cent). BERNZ also points to the possibility of a floating exchange rate being part of the orthodox approach to controlling the money supply in New Zealand. BERNZ says the economy will expand by about 2.5 per cent in the year to March, 1985, but in the following year economic growth is expected to slow to under 1 per cent. BERNZ predict that, mainly because of devaluation, inflation will rise through to March, 1985, when it will peak at 13 per cent. It is expected to slow significantly over the following 12 months and is forecast to be around 8 per cent by March, 1986. BERNZ predicts that a general wage order similar to the $8 per week order

given last March will be applied in October.

The next increase in wages and salarieis is likely to come in April, 1985, when BERNZ forecasts the Government will permit a wage round limited to a maximum of 5 per cent. In addition to these wage increases, $l5O million is expected to be given to low income earners in the form of tax relief and increased benefits in the Budget this year.

Despite these changes and an increase in the number of people employed, BERNZ forcasts that total real household disposable income will fall in 1985-1986 2.7 per cent.

The devaluation is not expected to have any positive impact on New Zealand’s external accounts in the short term.

Import payments are in fact likely to rise faster than export receipts over the next 6 to 9 months.

Thereafter, however, some improvement in our current account position is predicted, as the price of imports and the tighter credit conditions in New Zealand result in a decline in the volume of imports.