Rt Hon Sir William Birch

Treasurer
Hon Bill English
Minister of Finance

18 June 1999

For Immediate Release

March Current Account

The current account deficit of 6.4% in the March quarter reflects a continuing trend of New Zealand not having enough savings to finance the levels of investment being made here, Treasurer Sir William Birch and Finance Minister Bill English said today.

"Today's result shows conditions were difficult for exporters in the first three months of the year with weak commodity prices and a strengthening currency.

"The dollar has since eased and economists are predicting that exports will grow faster as the international economy recovers, improving the current account deficit in the medium term. Treasury's budget forecasts are for export growth averaging 4.8% over the next three years.

"However our trade balance is not the major factor in our persistent current account deficit. The merchandise trade balance - our exports versus imports - has been positive for the last 12 years.

"Our current account will remain in deficit as long as our investment is higher than our savings. A current account deficit arises when a country saves less than it invests and has to meet the difference with inflows of foreign capital.

"In the March quarter the gains from investment in New Zealand improved with our economic recovery, while returns on New Zealand investments overseas decreased.

"The other notable feature in the statistics is the strong improvement in tourism spending here, which contributed to the balance on services improving by $820 million in the quarter."

The Ministers said the Government does not contribute to the current account deficit.

"The current account deficit is not the bogey it was in the 80s when it reflected a large Budget deficit and government borrowing.

"This Government has been a net saver for the past six years. We have been running Budget surpluses and paying down debt.

"Today's current account deficit reflects the saving and investment decisions of private individuals and firms.

"And New Zealand needs high levels of investment for strong economic growth.

"But it reinforces that with a current account persisting at around this level, Government's must continue to run surpluses as a contribution to national savings and pay down debt and to continue with the process of economic reform to improve growth.

"Extra spending, as advocated by Labour and the Alliance, is not the answer.

"What will reduce the current account deficit over time is if households have higher savings rates so that we can supplement investment with domestic savings.

"It can be expected that raising people's incomes through growth, and tax cuts, increases their capacity to save, as will a better framework for superannuation."

Ends

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