‘Economic outlook clouded by deficit’

Press, 12 January 1987, Page 27

‘Economic outlook clouded by deficit’

PA Wellington A fiscal deficit that remains stubbornly above 5 per cent of gross domestic product clouds the outlook for the economy in an election year, according to the National Bank. In its monthly survey of business opinion, the bank says New Zealand governments have yet to prove that they can limit the growth of government spending in a manner which will move the deficit onto a sustainably lower track. “Unfortunately, it seems safe to assume that if or when the fiscal deficit is reduced, higher taxes will need to be one of the ingredients.

"Income tax and GST are two major contributors to the Government’s coffers, and increases in

their rates would have to be seriously considered by any minister of finance needing to raise revenue.” In the farming sector, the decline was stabilising, but little new on-farm investment was expected. Returns for farm products recovered a little in recent months, partly as a result of the depreciation of the exchange rate. However, the declining dollar aggravated inflation and machinery costs have jumped markedly. Six months ago many farmers reported their intention to run down stock numbers. The majority still intended to cut back on on-farm investment, the bank said. By contrast, retailers experienced good conditions through most of 1986, helped by the pre-

GST boom. Christmas sales had not been as strong as many had hoped, and retailers' would be trimming their orders early this year. Prospects for retailers for this year were marked down a little in the bank’s survey. The continuing tone of moderate optimism among ■ manufacturers suggested some improvement in the level of output this year. Capacity utilisation appeared lower than normal, but sales were steady. Stock, levels were not causing concern, and orders showed signs of a slight improvement The bank surveys the opinion of around 300 businesses each month for its publication, “Business Outlook.”