Key front-foots economic mood: no need for 'needless gloom'
The New Zealand economy is resilient and New Zealanders should not "needlessly talk ourselves into a gloomy mindset" because of the fall in dairy prices and international risks such as the Greek economic bail-out and apparent weakness in the Chinese economy, says Prime Minister John Key.
Speaking at his first post-Cabinet press conference after a mid-year break in Hawaii in a week when dairy prices plunged a further 10.7 percent and two polls showed a sharp dip in consumers' confidence, Key tackled economic sentiment as his first topic, citing a "reasonably positive" report back from Finance Minister Bill English after time spent in China last week.
English had returned to New Zealand "a bit more positive than when he arrived" in China, said Key, with evidence of strong consumer spending and rising agricultural sector wages offset by weaker construction and manufacturing activity.
"There are always risks around the world - what matters is our own resilience," said Key. The 25 percent fall in the New Zealand exchange rate against the US dollar over the last year was "further and faster" than forecast in the Budget, just two months ago, and would help buffer falling dairy prices by improving returns to exporters in other sectors and to tourism operators, he said.
"The New Zealand economy is still growing at a respectable rate," he said. "We should back ourselves to meet these latest challenges."
Bank and corporate balance sheets were sound, household savings rates had improved and lower interest rates, expected this week from the Reserve Bank's regular six weekly review, were all sources of resilience, Key said.
He expected new lending restrictions on Auckland house prices and requirements from Oct. 1 that non-resident real estate purchasers have a tax number and local bank account, along with a new clearer rule that houses sold within two years would attract tax on any gains, would help settle the Auckland housing market, along with an anticipated surge in new builds.
However, Key was shaky on the detail of the new rules for foreign investors, saying they would identify individuals rather than numbers of property bought by individuals and that they would not be able to separate out New Zealanders living offshore buying houses back home and foreign investors seeking real estate in New Zealand.
The government would collect the information before deciding whether further action on foreign investment in real estate was warranted, citing the failure of the Australian ban on the purchase of all but new houses by foreign investors as indicating how difficult it was to impose effective restrictions.
"People are interested in how much property is being sold," said Key. "Once they have a fix on that, they will have a sense of the scale of the issue."
The Treasury advised before the Budget that around 3 percent of New Zealand residential real estate is owned by foreign investors and Housing Minister Nick Smith put the figure at 1.2 percent in a weekend interview.
The government was "pragmatic" and had shown it was willing to act in areas of public concern, said Key.