27 Nov 2008

Govt says stimulus to boost economy by $7b

6:06 am on 27 November 2008

The Government's economic rescue package is expected to inject about $7 billion into the New Zealand economy during the next two years.

The figure includes the impact of tax cuts that came into effect from 1 October this year.

For the first time, the Treasury has estimated the impact of tax cuts and other changes aimed at combatting the worst effects of recession.

National had already estimated tax cuts in 2009 would inject an extra $1.3 billion into people's pockets.

It also announced it would bring forward spending on infrastructure such as roads and schools and make more money available to people who lose their jobs during the recession.

The Treasury estimates that together all the initiatives - plus October's tax cuts - will give the economy a fiscal boost of 4% over the next two years worth roughly $7 billion.

Finance Minister Bill English told Checkpoint on Wednesday the package is comparable to stimulus packages in the United States and the United Kingdom.

However, Mr English says there was more panic in those countries because of instability in their banking sectors.

On Wednesday the Organisation for Economic Cooperation and Development said economic activity will contract next year in New Zealand.

It forecast the economy will shrink 0.3%, compared with its previous forecast of growth of 2.1%.

The OECD says New Zealand is well placed to cope, as declining interest rates, tax cuts and increased government spending will offset the worst effects of the severe global downturn.