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Mr Goff's Monetary Mischief

Mr Goff's Monetary Mischief

Press Release by Hon Sir Roger Douglas, ACT New Zealand
Thursday, November 19 2009

Labour Leader Phil Goff's belief that the Reserve Bank's role of focussing on inflation should shift to trying to address exchange rate concerns displays his poor understanding of basic economics and suggests that Labour's anticipated big spending may be funded by substantial inflation, ACT Finance Spokesman Sir Roger Douglas said today.

"Mr Goff wants to reduce interest rates for businesses and homeowners to ensure they have more money. That sounds nice – but it also means people who save their money will have lower interest rates. This will particularly harm superannuitants who often rely on interest from savings to live day-to-day," Sir Roger said.

"Mr Goff wants to redistribute income from those who save to those who borrow – and he thinks this is a good way to reduce overall debt. This demonstrates that he either does not understand basic economics, or is more interested in political power than New Zealanders' welfare.

"Mr Goff believes high interest rates are leading to a high valuation of the dollar, which harms exporters. He's wrong: we currently have the lowest real interest rates ever and our dollar is high. If our dollar is overvalued, it is driven by other factors.

"One may be that high taxes are squeezing out exporters and domestic producers that compete with importers. They compete in an international market, and high taxes place them at a competitive disadvantage. We could invigorate that sector by slashing tax rates, rather than debasing the currency through inflation.

"Successful monetary policy needs mates – and with the big spenders in Government, it has few friends to turn to," Sir Roger said.

ENDS

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