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Debt and deficit highlights economic mismanagement

23 March 2005

Growing debt and deficit highlights economic mismanagement

The Green Party has accused the Government of sitting on its hands while New Zealand economy¡¦s deteriorates.

Statistics New Zealand announced today that New Zealand¡¦s current account deficit for the year to December had widened to $9.3 billion, or 6.4 percent of GDP, and net foreign debt had increased to $123.5 billon. The main factors behind the widening current account deficit were an increase in income payable to foreign investors, and an increase in the import of goods.

¡§Finance Minister Michael Cullen is like a king in his counting house gloating over the Government¡¦s fiscal surplus, while the rest of New Zealand is paying a high price for the Government¡¦s failure to actively manage the New Zealand economy,¡¨ said Green Co-Leader Rod Donald.

¡§When will the Government take heed of the messages in today¡¦s balance of payments figures? New Zealand simply can¡¦t afford to continue spending more than it¡¦s earning, and borrowing to pay the difference.

¡§Our deteriorating economic situation is exacerbated by the overvalued Kiwi dollar. It¡¦s why , along with the Government¡¦s free-trade policies, New Zealand now has a goods trade deficit of $2 billion on an FOB basis, when until two years ago we had always had a surplus.¡¨

The Greens are calling on Dr Cullen to:

-ƒnImplement the measures he says he has at his disposal to get the New Zealand dollar down to a reasonable level.

-ƒnScrap his plans to liberalise foreign investment laws and instead bring in tighter controls, both to limit speculation on property and to focus the inflow of foreign capital on new, productive investment.

-Re-orient the economy towards greater self-reliance. The Government¡¦s failed export-led growth strategy needs to be replaced by a determined ¡¥buy New Zealand made¡¦ campaign, led by the Government through its own purchasing policies.

-Introduce across-the-board tariffs on imports to reduce the current account deficit and to provide some relief from the high dollar for domestic manufacturers

-ƒnLook at introducing a capital gains tax on properties other than the family home. This would help to deflate the property boom but more importantly would give the Reserve Bank the flexibility to drop the official cash rate.

¡§Dr Cullen may not find any of these Green Party proposals palatable but I challenge him to come up with better ideas for reducing the pain being caused by the deteriorating current account deficit,¡¨ Mr Donald said.


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