(Bloomberg) — New Zealand must control government spending to successfully curb inflation, Prime Minister Christopher Luxon said weeks before releasing his administration’s first budget blueprint.
Most read from Bloomberg
The government is determined to get New Zealand’s “books in order,” Luxon said Tuesday in an interview with Bloomberg Television’s Haslinda Amin in Singapore, where he is leading a trade delegation as part of a three-nation visit to Southeast Asia, including Thailand and the Philippines.
In a wide-ranging interview, Luxon expressed concern about the conflict in the Middle East and rising tensions in the South China Sea, seeking de-escalation and a path to stability and security. He emphasized the importance of China as an economic partner and reaffirmed his plan to visit China. However, Luxon said he won’t be able to make the trip this year.
On the domestic front, he said cutting wasteful spending is a priority for the government as it tries to reverse an economic downturn. The New Zealand economy entered recession in the second half of 2023 and has contracted in four of the past five quarters.
“We have had an 84% increase in government spending over the last six years, and what we have recognized and established is that there is actually a lot of inefficient and wasteful government spending,” Luxon said ahead of the conference. budget to be presented on May 30.
Some economists expect the recession to continue this year as the central bank keeps interest rates high to curb price pressures.
Luxon said controlling government spending is the “way to lower inflation,” which then “brings down interest rates and also brings about economic growth.”
First-quarter inflation data will be released on Wednesday, with economists expecting price increases to ease from 4.7% to 4%. However, persistent inflation in the US has led the market to price in a Federal Reserve rate cut in September rather than the previous July, which could in turn delay any easing by global central banks.
The New Zealand Reserve Bank has said it will not start cutting rates until 2025, although most economists and investors expect the weak economy to lead to a shift to monetary easing later this year.
“You haven’t actually seen any further increase in interest rates, we’ve seen inflation come down. We hope to have it back in our band by the end of the year,” said Luxon. The inflation target is 1%-3%.
Below are some excerpts from the interview with Luxon on other topics:
About Iran’s attacks on Israel and tensions in the Middle East
“We condemn Iran for the attack. I mean, it was unprecedented in terms of what we’ve seen in the region. But what matters now is that all parties actually exercise restraint. Frankly, our main thoughts are really about the suffering, pain and suffering of the people of the region. It is a region that has been through a lot.”
On New Zealand’s relationship with China
“We have a long and important relationship with China, and that has been the case for decades. But what we do is work together where we can, and that is on trade and certainly on climate change. We have a strong set of values, which we have disagreements about, given our differences in our political system.”
About when he plans to visit China
“I will at some point. It won’t be this year, just because of the schedule.”
On New Zealand’s plans to join Aukus
“We are open to exploring pillar two of Aukus to see if there are opportunities for some involvement there. It is clear that in recent weeks the path has been opened for discussions and conversations about the second pillar and we will of course take time in the coming months and year to reflect and explore what these might look like.
–With help from Tracy Withers and Alex Chandler.
(Updates with more comments from the Prime Minister.)
Most read from Bloomberg Businessweek
©2024 BloombergLP
