10 September 2009
Media Statement

Bollard calls for rebalancing of New Zealand economy

Reserve Bank Governor Dr Alan Bollard has confirmed the need for active rebalancing of the New Zealand economy, says Labour Finance Spokesperson David Cunliffe.

Reserve Bank projections show the current account deficit widening again to minus 7 percent in 2010/11 (from minus 5.8 percent in 2009/10) as a potential rebound in consumption and higher exchange rates kick in.

“This is a potentially dangerous situation for New Zealand. New Zealand must improve net savings and exports to stabilise the current account,” David Cunliffe said.

David Cunliffe said Governor Bollard today briefed the Finance and Expenditure Committee that central banks worldwide were exploring broadening their tool sets to enable them to help stabilise domestic asset bubbles as well as traditional price stability objectives.

Governor Bollard called on the Government to consider complementary policy tools, including a capital gains tax on speculative housing investment, to help prevent a resurgent debt-fuelled housing bubble, David Cunliffe said.

“It is essential that capital flows to New Zealand’s productive economy --- people who make things and export things,” he said.

“With gross national debt above 140 percent of GDP and climbing, it is past urgent for the National Government to take a firm stance on this crucial policy question.”

Associate Finance spokesperson David Parker said Governor Bollard’s warnings about the current account deficit increasing to minus 7 percent “will see the country getting poorer by $15 billion a year.

“This shows the Government’s policies are not working, and rather than an export-led recovery the Finance Minister is encouraging the very consumption pressures he has previously decried.”

ENDS

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