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It's time for Labour to wake up and face the music

23 June 2005

It's time for Labour to wake up and face the music

Today's record current account deficit will lead to higher interests, the Green Party says.

Statistics New Zealand announced today that New Zealand's current account deficit for the year to March had jumped to $10.35 billion, an all time record, or 7 percent of GDP - the worst level since March 1986. The main factor behind the ballooning current account deficit were an increase in dividend and interest income payable to foreign investors.

"The Government is failing in its duty to actively manage the New Zealand economy and Kiwi businesses with bank loans and homeowners with mortgages are paying the price, Greens Co-Leader Rod Donald says.

"According to the Reserve Bank, domestic borrowers are already paying a 1-2 percent interest rate risk premium because of New Zealand's unsustainable current account deficit.

"Now that the deficit had deteriorated to the trigger point of 7 percent, lenders will want to punish us even more for having such a fragile economy.

"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.

The Greens are calling on Dr Cullen to:

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

*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

*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, which would generate jobs and reduce our current account deficit.

*Reverse his liberalised 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.

*Look 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.

"The US economy may be in worse shape than New Zealand's but that's no excuse for the Labour Government to sleepwalk to fiscal surpluses while the rest of the country pays a high price for its free market policies," Mr Donald says.


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