Hon Dr Michael Cullen
Minister of Finance

22 June 2006 Media Statement

Current account deficit underlines fiscal prudence

The wisdom of the government's fiscal strategy has again been underscored by the latest current account figures, Finance Minister Michael Cullen said today.

The March year current account deficit widened to $14.5 billion or 9.3 per cent of GDP, slightly worse than market expectations.

"Strong economic growth and higher oil prices have aggravated the goods balance, but there are some hopeful signs with the trend on goods flattening out. This should improve over the next year as the lower exchange rate boosts export returns," said Dr Cullen.

"The result shows just how reckless National's multi-billion tax cuts would have been at this stage of the economic cycle. Further fiscal stimulus would clearly have aggravated the deficit as well as boosting inflation and raising interest rates.

"Today's result reinforces the government's prudent fiscal strategy of reducing debt, investing in infrastructure and building up assets in the New Zealand Superannuation Fund. It's why Standard & Poor's recently said we have the balance right, being one of the "best placed" nations in the world to cope with future challenges.

"However, we need to encourage a stronger savings culture if we are to be less reliant on foreign capital and the government is endeavouring to do that through initiatives such as KiwiSaver."

ENDS

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