Migration curbs, tweaked inflation target not warranted - English

The government is not considering curbing immigration to New Zealand, despite its contribution to rising house prices, especially in Auckland, and the additional pressure it places on government spending in areas such as education, said Finance Minister Bill English.

Speaking to media after delivering a pre-budget speech in which he warned that achieving a fiscal surplus next year would be a challenge as low inflation saps the usual natural growth in tax revenues caused by rising wages and prices, English said that past experience showed that changes to migrant rules generally took a long time to produce any significant change in numbers arriving.

Nor did he believe there was a need to change the Reserve Bank of New Zealand's policy target agreement, which requires the bank to target an annual inflation rate of between one and three percent over the medium term. Inflation has tracked below 2 percent since late 2011 and ran at 0.1 percent in the year to March 31, influenced largely by plunging oil prices and the strong New Zealand dollar.

"I don't see any reason to change the agreement," he said, while acknowledging inflation had been below the target for "a wee while". "It's based on the idea that 2 percent, the mid-point of the band, is a sort of healthy level of inflation."

The Reserve Bank was "driven by the facts rather than the government's opinion and they've shifted their view a bit in recent times based on their view about the outlook for the global economy and our economy. This is really a matter of how long it goes on for, isn't it? We've turned out to have lower inflation than expected and it's more persistent than expected and if it stays long for some time yet, my guess is the Reserve Bank would shift its view again."

On migration, English acknowledged that ongoing weakness in the Australian economy was likely to see record net migration figures continue for some time in New Zealand.

"Immigration numbers are a bit like interest rates," said English. "They're a bit out of the ordinary and we expect them to stay out of the ordinary for a while. We expected immigration to ramp up and we thought it would peak and drop off pretty quickly. That hasn't happened. It's been maintained.

"That does put pressure on government spending. We need a lot more classrooms and we've got to pay for those.

"If you think those numbers have been driven by the relative performance of the Australian and NZ growth rates, then yesterday a significant Australian bank lowered their growth forecasts for Australia, so that would tell you we're likely to have similar flows for a while and not have a sharp peak," said English.

"I think as everyone understands, that puts more pressure on some issues like housing, but it's generally good for the economy. It's a problem of success."

(BusinessDesk)