CTU MEDIA RELEASE
29 March 2007

Investment Income Deficit the Key Balance of Payments Issue

The Council of Trade Unions said today that it is a major concern that Statistics NZ are attributing the widening of the income deficit in the December 2006 quarter to an increase in income payments to foreigners on their investments in New Zealand, and reflected a return to similar levels recorded in previous quarters.

The 9% current account deficit reflects the fact that the investment income flows completely overshadow the trade figures. Both exports and imports fell in the December quarter but it would take a huge increase in exports to significantly reduce the overall deficit.

Over $12 billion of the $14.4 billion deficit comes from the investment income side.

Even when our economic performance improves, the current account deficit can worsen as higher profits accrue to overseas owners of companies in New Zealand.

There are no easy answers to this problem, said Peter Conway CTU Economist.

“The CTU supports Export Year as a way to raise the profile of the value to New Zealand from increased and added-value exports. We also support KiwiSaver as a way to encourage long term savings in New Zealand. We would also like to see more joint ventures with domestic capital combining with foreign investment rather than a continuing sell off to overseas buyers. However the other part of the investment income deficit besides profits flowing offshore is due to bank borrowing offshore to finance mortgages. And that is driven in part by the problem of home affordability,” he said.

ENDS