Is National driving us to a Lizz Truss economic run on the market?

IMF warns New Zealand Government against borrowing to fund tax cuts, fearing this could exacerbate inflation

The International Monetary Fund (IMF) is urging the Government to ensure it can pay for its tax cuts without borrowing more.

The organisation is wary of the fact New Zealand is still battling inflation, so fears that putting more money into the economy, without taking an equivalent amount out, could exacerbate the problem.

“The planned personal income tax relief is targeted predominantly at low and middle-income earners and families with children, which have a higher propensity to spend,” the IMF said in a report prepared following a routine review of New Zealand.

“To avoid any upside pressure to inflation it is important to calibrate the funding, timing and the parameters of this tax relief to be fiscally neutral.”

The IMF are warning us that borrowing $19.1billion for Tax Cuts, Tax Breaks and Public Servant redundancy packages will cause damage to the NZ Economy.

When Liz Truss attempted to implement her neoliberal agenda, the market itself refused to believe the numbers and caused a run on the UK Market…

How Liz Truss plunged the UK to the brink of recession in just one month

Britain’s new prime minister, Liz Truss, has been in office for less than a month, but her premiership is already deep in crisis, while Britain teeters on the brink of recession.

Truss took over from Boris Johnson at the start of September and was immediately plunged in at the deep end, with the death of Queen Elizabeth II. But the 10-day national period of mourning came to an end abruptly.

Determined to quickly make her mark, Truss announced a radical new economic agenda of tax cuts and spending worth tens of billions of pounds funded by borrowing – the true total of which is still not known.

The move, which appeared to also violate public spending curbs, tore apart the orthodoxy established by the three Conservative prime ministers who went before her during 12 years in power that tried to emphasise fiscal prudence.

Truss’s drive for growth proved too radical for traders. The pound was sent spiralling to reach its lowest value against the US dollar, an embarrassing intervention from the central bank – the Bank of England – was made to avoid a raid on pension funds, and rebukes from foreign observers, including the International Monetary Fund (IMF), were swift.

…I fear the same thing could occur here in NZ if this Government attempts tax cuts that the market concludes can’t actually be attained.

We have already seen the Credit Agencies downgraded Council debt last month because the new Water entities aren’t backed by the Government…

S&P revises credit rating outlook for Wellington, Dunedin, New Plymouth councils

The credit ratings of a large number of councils are under threat of a downgrade because of deteriorating finances, rising debt, and policy uncertainty.

S&P Global Ratings has revised the outlook for 15 councils and two council controlled organisations from “stable” to “negative” and said the overall financial trend is weakening.

Among those having their outlooks downgraded were the Greater Wellington Regional Council, and councils in Dunedin, New Plymouth, Whanganui, Upper Hutt , Tasman and Nelson.

The outlook revision is not a rating downgrade. Most local councils and their associated commercial organisations are rated AA, which are underpinned by the country’s national top tier AA+ rating.

“Rising infrastructure budgets and responsibilities are exerting pressure on the finances of New Zealand’s local governments. Revenues and central government grants are not rising enough to cover this additional spending,” credit analyst Anthony Walker said.

“This is leading to widening revenue and expenditure mismatches, as seen in large deficits and rising debt compared with similar systems.”

S&P said the outlook for council finances was further dimmed by uncertainty about the future direction of policies on key issues.

…the unique weakness of Luxon with Seymour and Winston undermining him each and every week means he will get pushed into this $19.1billion tax cut/tax break/redundancy pay out and not manage to continue the funding the State requires.

The market will ruthlessly punish radical free market ideology if the myths don’t reflect reality.

 

 

Increasingly having independent opinion in a mainstream media environment which mostly echo one another has become more important than ever, so if you value having an independent voice – please donate here.

If you can’t contribute but want to help, please always feel free to share our blogs on social media.