"The $523 million deterioration in the balance of payments deficit is worse than most commentators were expecting and virtually guarantees a credit downgrade post-election," Labour finance spokesperson Michael Cullen said today.

"The rating agencies have long been concerned about the weakness of New Zealand's external accounts. It is the primary reason Moody's took New Zealand down a notch in the credit ratings last year and why Standard and Poors has placed us on negative credit watch.

"The increase in the deficit reflects the domestic-led nature of the recovery and the continuing flatness in the export sector.

"Exports fell by $153 million over the March quarter while imports rose by $89 million.

"Further tax cuts would only exacerbate this imbalance by stimulating consumption," Dr Cullen said.

"What is needed is a strategy to relieve the economy's dependence on commodity production and to encourage more value-added exporting. Labour's economic policy is designed to achieve exactly these objectives."

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