The recovery from recession is expected to be gradual...
After a fall of 1.4% in the March 2009 year and 0.3% in the March 2010 year, real output is expected to grow at around 3% per annum: 3.2% in the March 2011 year; 3.1% the next year; 2.9% in the March 2013 year; and 3.0% in the March 2014 year. These growth rates are higher than our estimate of potential growth over these four years of around 2.8% per annum.[1] The positive outlook is supported by the lagged impact of an easing in monetary conditions since mid-2008, a stronger global environment and associated higher demand for exports, high confidence levels, the hosting of the Rugby World Cup in late 2011 and the tax package.
The tax package in Budget 2010 has a significant impact on the economic outlook, although the exact impact will depend on the responses of numerous firms and individuals and is therefore uncertain. The tax package and its impacts are outlined on pages 68 to 70. At the economy-wide level, the main impacts are assumed to be:
- The level of real output is expected to be 0.9% higher in the long run. By the June 2014 quarter, the economic forecasts incorporate a level of real outputthat is 0.4% higher than in the absence of the tax package. This impact takes time given the amount of spare capacity in the economy currently. Therefore, in the medium-term projections in the Fiscal Strategy Report, a further impact of 0.5% is expected by June 2017.
- The tax package is also forecast to cause volatility in output growth in the second half of 2010. Real output is expected to grow strongly in the September quarter and fall slightly the next quarter as some consumer spending, particularly on durable goods, is brought forward before the increase in the GST rate on 1 October 2010.
- The tax changes are expected to boost incomes, help encourage more saving and reorient investment towards more productive parts of the economy.
Notes
- [1]Potential growth is an estimate of how fast the economy can grow without generating inflation pressure.
