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Balance of Payments deficit - consider tariffs

Any Government is going to have to look seriously at the use of tariffs to address New Zealand's serious chronic balance of payments deficit, Alliance leader Jim Anderton said today.

He says tariffs need to be complemented by improved monetary policy and a Government led investment to strengthen the tradeable sector and diversify the export base.

New official figures show a balance of payments deficit for the year to March of $6.374 billion, or 6.4% of GDP. The balance of payments is the difference between the amount New Zealand earned overseas last year and the amount it spent.

After two full years running a current account deficit in excess of 6% of GDP, Jim Anderton says the climate for the use of tariff policy is changing.

"No one can seriously believe that overseas deficits of this size are sustainable. The deficit is so large and so intractable that it restrains economic growth. The economy can't pick up quickly without sucking in imports, which in turn worsens the deficit and slows growth.

"Forget the intellectually vacuous argument about an open or closed economy that has surrounded tariff debate previously. We need to look at the merits of adjusting the price at which our economy engages with the rest of the world as a way of restraining the deficit. New Zealand has stripped away protection much faster than other countries, and as the lamb dispute with the US shows, we are not reaping benefits.

"Tariffs alone will never be enough, of course. One of the biggest problems is that we are still far too dependent on commodity exports and world prices for commodities are declining.

"New Zealand's export base needs to be diversified - we urgently need job rich new industries in high-value new technology industries. The market has performed very poorly in providing the capital those industries need. Only a Government-led programme, in partnership with the private sector, will work. That's what most developed countries do and it's one reason they don't have chronic deficits."

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