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Liam Dann, business editor-at-large for the New Zealand Herald, predicts that the recent wave of job cuts in the public sector is just the beginning, with the possibility of up to 30,000 jobs being eliminated nationwide within the next year.
Drawing from his extensive 25-year career in business reporting, Dann, who recently authored “BBQ Economics: How money works and why it matters,” expressed that the news of impending job losses wasn’t unexpected, as economists have been discussing the uptick in unemployment for months.
New Zealand had experienced historically low unemployment, dropping to nearly record lows of 3.2 percent in June 2022 before climbing to approximately 4 percent presently.
In stark contrast, unemployment soared to around 11 percent in 1992 following the austerity measures and cutbacks of Ruth Richardson’s “Mother of All Budgets.” Dann characterized that era of public service reductions and severe recession as “extremely challenging,” noting that the current phase entails a similarly painful transition.
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Economists have long been predicting a rise in unemployment to about 5.5 percent, indicating that the nation is still less than halfway through the process of economic tightening.
“Unfortunately, this implies that tens of thousands, perhaps up to 30,000, more jobs could be lost in the next year. So, brace yourselves,” Dann cautioned.
Dann openly criticized the government’s proposed tax cuts, stating that they would complicate fiscal matters further.
“While there may have been room for tax cuts down the line, the government’s approach seems fiscally conservative. These cuts only exacerbate their challenges,” Dann opined.
Most economists share the view that this strategy will only delay the government’s return to surplus, Dann added. Even those with free-market leanings, such as Eric Crampton of the New Zealand Initiative, caution against tax cuts while the nation is in deficit.
Dann also faulted the previous Labour government for not initiating these adjustments sooner, despite the signs of an impending economic shift.
The looming job losses and persistently high interest rates are expected to have a recessionary impact on the economy, Dann asserted.
While austerity measures have fallen out of favor, the government contends that its reforms are moderate. Dann contrasted this with the response to the Global Financial Crisis in Britain, where stimulus measures were adopted to counteract economic contraction.
However, the government’s response to the Covid-19 lockdowns hindered such stimulus efforts, Dann noted.
“We’ve just emerged from a significant period of pandemic-induced stimulus, which has led to inflation,” Dann remarked.
“The timing is unfortunate because we’re still grappling with inflation, while the recession is naturally curbing demand and tightening the money supply. But it’s a slow process,” he added.
Dann argued that the proposed tax cuts would only add to inflationary pressures, despite the government’s assertion that they provide relief to hardworking individuals.
“While the government argues that tax cuts benefit hardworking individuals, the timing isn’t right. It exacerbates inflationary pressures when we’re attempting to curb them,” Dann concluded.
SOURCE: NEWSHUB