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Interest rate rise bad for business and workers

27 October 2005

Interest rate rise bad news for business and workers

Today's rise in the Official Cash Rate will backfire badly on New Zealand businesses, the Green Party says.

Reserve Bank Governor Alan Bollard has announced the OCR would increase 25 points to 7 percent.

Green Party Co-Leader Rod Donald says this decision will cause even more pain for Kiwi manufacturers, exporters and tourist operators and the people who work in those enterprises.

"Not only will the higher OCR increase the cost of capital but it will continue to prop up New Zealand's over-valued dollar. This has already caused exports to fall $2.1 billion over the last four years, and forced imports to skyrocket $4.1 billion during the same period," Mr Donald says.

"I can understand why Dr Bollard wants to keep inflation under control, but why does he have to cripple New Zealand's productive sector in the process? The impact of the high Kiwi dollar has already caused job losses as local manufacturers are forced out of business or offshore because of cheap imports. Air New Zealand's move to outsource maintenance is also partly driven by the high dollar.

"Dr Bollard's message is clear; he will continue to push up interest rates until there is a drop in household spending and a reduction in debt financing of the housing market. We certainly can't afford to ignore his warning that there will be serious economic disruption if New Zealand doesn't reduce its unsustainable current account deficit.

"The Green Party has long advocated for the Government to take a firm hand on the economic tiller. It will take some careful navigation and decisive management by Finance Minister Michael Cullen to avoid the New Zealand economy sinking badly," Mr Donald says.

Mr Donald repeated the Green Party's calls for Dr Cullen to:

* Investigate introducing a capital gains tax on properties other than the family home to deflate the housing boom and give the Reserve Bank the flexibility to drop the OCR.

* Tighten foreign investment laws to limit property speculation and priorities productive investment.

* Introduce across the board tariffs on imports to reduce the current account deficit and provide local manufacturers with some relief from the high dollar

* Reorient the economy towards self-reliance by backing the Green Party's Buy Kiwi-made campaign

* Implement the measures he said in 2003 that he had at his disposal to get the dollar down to a realistic level

"Our proposals may not be popular but they are necessary if we are ever going to regain control of our economy. Shutting our eyes and blaming the perilous state of the US economy for our woes is certainly not the way forward," Mr Donald says.

ENDS

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