Independent economist Cameron Bagrie is warning the Government of how its tax cuts could affect inflation and the cost of living.
The Government has said it intends to unveil tax cuts in this week's Budget.
In her pre-Budget speech, Finance Minister Nicola Willis admitted New Zealand was experiencing a "difficult economic downturn".
Nonetheless, Willis said the Government would push ahead with "relatively modest" but "long overdue" tax relief in the Budget.
Bagrie told AM how the Government implemented the tax cuts was crucial.
"Critical within this Budget will be timing," he said. "Particularly the timing of spending cuts - which will be spread out over four years - versus the timing of tax reductions."
Bagrie said there's likely concern from the Reserve Bank as to how those tax cuts will be phased in.
If tax cuts are introduced in the coming fiscal year but spending restraint takes between three and four years to kick in, "that could create a little bit of a near-term inflation challenge for the Reserve Bank in 2025", he said.
Bagrie said the Reserve Bank needed inflation figures to continue falling throughout this year and the start of 2025.
"The big issue here is... tax cuts versus spending restraint, what is the net effect of the two - particularly in 2025?
"What we do know, more broadly, is that when you see an 80 percent-plus increase in public spending over four to five years, you can pretty well guarantee there's a fair bit of fat that's been put in the system."
Prime Minister Christopher Luxon said the Budget would include funding "to embed social investment in the delivery of services across Government".
In his pre-Budget speech, he said there was "absolutely no kindness in spending up large, only to see businesses close and families go without as the consequence of inflation".
He said the job in Wellington was to get Government spending back under control.
"And those savings mean we can make real choices... Supporting low-and-middle-income families with the cost of living."
Newshub.
