OCR changes will hurt our economy

OCR changes will hurt our economy

The Reserve Bank’s reliance on one tool, the Official Cash Rate (OCR), relies on damaging the very sectors we need to prosper if we want a more sustainable and productive economy, the Green Party said today.

“We need more tools than crude shifts of the OCR to respond to the complex set of economic challenges we’re facing,” said Green Party finance spokesperson Dr Russel Norman.

“It’s not a smart way to run an economy by simply hitting our tradable sector on the head whenever they begin to create prosperity here at home.

“We need to rebalance the economy, not restrain it.”

The Governor’s decision to raise the OCR to 3.0 per cent today will raise the value of the kiwi dollar making it harder for our export sector to compete overseas and harder for domestic manufacturers to compete with imports.

“It’s the same old story: a stronger kiwi dollar will hurt our farming exports while making imports more attractive. Private debt will grow. Our current account deficit will worsen. And we’ll have to sell assets to foreigners in order to finance the debt.

“If we don’t change the way we manage our economy, it will forever remain sick and imbalanced — an economy geared primarily towards debt-fuelled consumption of imports.

“The current monetary policy settings by themselves do not work to promote a vibrant, diversified, and productive economy,” said Dr Norman.

Dr Norman suggested a number of reforms that would rebalance the economy more effectively than shifts in the OCR.

“The Government missed a once-in-a-lifetime opportunity to use changes to the tax system to rebalance our economy.

“Our tax system encourages a disproportionate amount of our wealth to be invested in non-productive assets like property. A capital gains tax on any property investment excluding the family home would help direct investment towards more productive sectors.”

ENDS