Sluggish economy, spending cuts loom

The government's books were opened up yesterday and it's not a pretty picture. Treasury is forecasting an economy facing two years of sluggish growth, rising unemployment and a prolonged contraction in real GDP per capita growth which signals a decline in living standards. Inflation is the one possible bright light - expected to fall to 4.1 per cent next year and 2.5 per cent in 2025, although the Reserve Bank Govenor Adrian Orr says it continues to be a struggle to contain core inflation. A weaker economy since the last update in September has seen the tax take fall by $1.6b over the forecast period, and expenses have grown, mainly thanks to more borrowing and higher interest costs. In response, the Finance Minister Nicola Willis outlined a range of cost savings and new revenue totalling $7.5 billion over the next five years - which she says is the beginning of the fiscal clean up. Kathryn discusses with Stephen Toplis, head of research at BNZ.