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Home owners need interest rate relief

15 September 2005

Home owners need interest rate relief

The Green Party understands why Reserve Bank Governor Alan Bollard has not changed the official cash rate so close to the election, but once the new government is in place, it will need to work with the Reserve Bank to give home owners with mortgages and businesses with bank loans relief from high interest rates.

"New Zealand's official cash rate is one of the highest in the OECD," Green Co-Leader Rod Donald says. "It highlights the structural problems in the New Zealand economy that aren't getting the attention they deserve.

"The Reserve Bank has already conceded that there is a one to two percent risk premium built into interest rates because of New Zealand's high current account deficit.

"New Zealand's current account deficit for the year to March was $10.3 billion, or 7 percent of GDP. It's predicted that the June year deficit, due out next week, will climb even higher as a result of a worse-than-expected trade deficit for the June quarter.

"The reason why Bollard won't cut the Official Cash Rate is because he fears it will fuel another resident property boom. That's why the new government will need to look at strategies to encourage people to invest in the productive sector, rather than property speculation.

"One option the Greens believe should be investigated is a capital gains tax on all but the family home. This would bring us into line with the rest of the OECD. More importantly, it would give the Reserve Bank Governor the freedom to cut interest rates.

"An added bonus is that this would help to drive down New Zealand's over-valued dollar, which is crippling our exporters, domestic manufacturers, and the tourism industry."


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