22 November 2005

Cullen on RBNZ briefing to the incoming government

Finance Minister Michael Cullen today released the Reserve Bank’s briefing to the incoming government, saying it made sobering reading.

“The report identifies a series of imbalances in the economy: persistent high domestic demand, core inflation knocking 3 per cent, a widening balance of payments deficit, house prices that the Bank considers are reaching levels inconsistent with longer-term fundamentals and an exchange rate at near record highs in trade-weighted terms.

“The Bank repeats earlier warnings that further increases in interest rates cannot be ruled out and reinforces the need for the government to maintain a prudent fiscal stance,” Dr Cullen said.

“It is a message that I have also been promoting. Although the government accounts are in a healthy state, too great a fiscal stimulus would be debstabilising under current economic circumstances.

“Certainly large across-the-board tax cuts of the kind National campaigned on would be explosive and irresponsible in the extreme.

“That is why the manifesto Labour took into the election campaign was the most fiscally conservative of any party and why we will continue to run a prudent and consistent fiscal strategy,” Dr Cullen said.

The briefing can be accessed on:

ENDS

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