The International Monetary Fund (IMF) has warned the Government it will need to keep spending low while the economy builds itself back up, according to it's annual report.
The IMF thought inflation would reduce back to under the desired 3% by the end of the year, but warned the Government to reign in spending on tax cuts which could prove inflationary.
The fund once again called for a comprehensive tax on capital gains to be introduced, as well as a land tax which it said should "increase the progressivity of income tax" — widening the gap between lower and higher tax rates.
"We have recommended repeatedly, [and] yes, I know that politicians don't pay attention, I don't think we are the only ones," said IMF New Zealand mission chief Evan Papageorgiou.
"Treasury and IRD also have similar opinions, there is a quite a lot of good advice out there to influence the public debate."
He said any sort of outcomes should be done in a "fiscally neutral way".
"As you can understand, that could mean many ways, you know, potentially on the timing and also on the size of the proposed measures".
Tax policy reforms were needed to promote investment and productivity growth and bring in additional revenue, it said.
The IMF report said measures to boost the supply of housing were also "urgently needed" — describing housing-affordability issues as "particularly severe".
When asked about the IMF's call for a capital gains tax today, Finance Minister Nicola Willis said it was clear "not everyone thinks it's a good idea".
She also responded to the IMF warning about inflation with, "we are being careful because we are not going to be delivering tax cuts that require us to borrow more".
'It's really tough for people out there'
The IMF report also predicted the New Zealand economy would grow about 1.1% in the coming year, which would be a welcome boost for one of the country's largest retailers which today posted a net loss after tax of $23.7m.
The Warehouse Group chief executive Nick Grayston told 1News the overall result with total sales of $1.633b — down 4.9% compared to the first half of FY23 — was "sobering".
"The people who do have money have chosen to spend it much more on entertainment and travel that's come at the cost of buying goods and people having to make sacrifices. It's really tough for people out there," he said.
The tough economic outlook compounded last month as The Warehouse Group announced it had sold the outdoor brand Torpedo7 for $1 to Tahua Partners Limited.
"It's bittersweet to let the business go but we feel that this was the best solution because it remains in key hands and the majority of staff will remain employed by the new owners, and the business will continue to serve everyday Kiwis," Grayston said.
The company would also look to sell or shut down it's online retail venture The Market, which has struggled to get up and running since it's 2019 launch.
"The Market has proved to be significantly loss-making. We pared that loss back a lot this year, but now we've been able to move the ability to fulfill for most third-party sellers on the red website that we're happy to do. So it's much more profitable," he said.
Grayson said Kiwis were still turning to The Warehouse looking for cheaper groceries, or to spend less entirely, as rising inflation and interest rates hit consumers in the pocket.
"We're a small player. We're only about 3% of the market but we've had a massive response from some of the things that we've done like the $5 eggs," he said.
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