Spend less
The agency suggests the Government somehow reduces the cost of New Zealand Superannuation over time.
National and Act are supportive of raising the age of eligibility for NZ Super from 65. The other parties in Parliament don’t want to reduce NZ Super entitlements.
The IMF also believes KiwiSaver contribution rates need to continue rising, as does participation in the scheme.
National, NZ First and Opportunity are advocating for making KiwiSaver membership compulsory and lifting minimum contributions over time.
Act is generally in favour of letting people decide how they save for their retirements. Labour, the Greens and Te Pāti Māori are yet to release pre-election KiwiSaver policies.
The IMF says governments will need to be disciplined when delivering budgets for some years to come, especially given the cost of NZ Super and bolstering the country’s defence capabilities.
It believes more fat can be cut out of the system, but commends the Government for not making more drastic reductions at a time the economy has been struggling.
Tax more
The IMF recognises cost-cutting alone could reduce the quality and delivery of public services, so believes changes to the tax system are required too.
Act, and to a lesser degree, National, are the only political parties that advocate for reduced government spending.
The IMF recommends New Zealand introduces a comprehensive capital gains or land tax.
While a few political parties want to increase taxes, none want to do so to pay down debt, as the IMF suggests, saying: “Any revenue overperformance should be saved to accelerate buffer rebuilding.”
Labour wants to introduce a narrow capital gains tax on investment residential property. It wants to spend the additional revenue on various new initiatives, including making it free for all New Zealanders to visit the GP three times a year and removing $5 pharmacy prescription fees.
Opportunity wants to introduce a land tax and use this revenue to provide a universal basic income.
The Green Party and Te Pāti Māori want to make a raft of tax and welfare changes aimed at supporting beneficiaries and lower-income earners at the expense of higher-income earners, big companies and those with a lot of wealth.
Act, and to a lesser extent National and NZ First, advocate for lower taxes and more of a user-pays approach.
Foster growth
The IMF says structural reforms are “critical” to boosting productivity, growth and living standards.
“Broad-based reform efforts should focus on deepening domestic capital markets, strengthening product market competition, easing barriers to foreign direct investment and technology diffusion, and improving regulatory settings and public investment management,” the IMF says.
“Policies that strengthen the incentives and conditions for investment are critical, including improving access to long‑term finance, reducing regulatory barriers to business expansion, and fostering competitive product and labour markets.”
There are several policies across the political spectrum aimed at addressing the above.
Generally speaking, National and Act favour more foreign investment, deregulation and the recycling of state-owned assets.
Labour, NZ First and the Greens are more comfortable with the government intervening in markets – be it to enhance workers’ rights, support certain sectors/causes, or promote competition.
The IMF says New Zealand is making progress adopting AI, but job listings suggest there is less demand for AI-related skills than in leading advanced economies.
“Continued progress on the structural reform agenda – including the Commerce Act review, Capital Markets Reforms, and review of research and development tax incentives – would help New Zealand convert its strong AI preparedness into economic gains.”
Prepare for possibility of higher inflation, slower growth
The IMF sees the annual inflation rate peaking at 4% in mid-2026, thanks to high oil prices, before dropping back.
It believes the Reserve Bank should lift the Official Cash Rate (OCR) from the stimulatory level it’s at, to a more neutral level by the end of the year.
This would balance support for the economy with keeping inflation expectations anchored.
The agency sees risks to the inflation outlook being skewed to the upside, given the possibility of renewed conflict sending oil prices north again, so believes there is a chance the Reserve Bank will have to hike the OCR more aggressively.
It notes the importance of Reserve Bank independence, saying that “in an environment of elevated uncertainty and more frequent shocks, safeguarding the credibility of the monetary policy framework is essential”.
As for economic growth, the IMF’s central projection is for the economy to grow by 2% throughout 2026, with this rate rising to 2.7% in 2027, as “pent-up demand and business confidence recover, supported by continued strong exports of agricultural products and tourism”.
However, there is a risk the conflict once again hamstrings New Zealand’s economic recovery.
“The more frequent materialisation of external shocks, including geo-economic fragmentation, trade disruptions, and natural disasters, poses continuous risks,” the IMF says.
“Conversely, a stronger transmission of monetary accommodation, or productivity gains from structural reforms could support a quicker rebound.”
The IMF’s comments make up its preliminary findings of a routine review it does of New Zealand.
The review saw its staff meet with Finance Minister Nicola Willis, Reserve Bank Governor Anna Breman, Secretary to the Treasury Iain Rennie, other senior officials, members of Parliament, analysts, think tanks, trade union representatives, and business groups.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.