Hon Dr Michael Cullen
Minister of Finance

8 June 2006 Media Statement

National ignores inflation warning

The Reserve Bank's latest monetary policy statement provides the sort of cold, hard evidence on inflation that should make National rethink its reckless tax cut plans, Finance Minister Michael Cullen said today.

The bank is forecasting inflation to nudge 4 per cent over the next year due to the sharp decline in the exchange rate and higher oil prices.

"It's staggering that a former governor of the Reserve Bank is content to mislead the public by claiming his multi-billion dollar tax cuts are affordable.

"Yesterday he launched a postcard campaign claiming National would have introduced $2.2 billion of tax cuts in its Budget this year.

"Clearly today's warning by the Reserve Bank shows how irresponsible that policy would have been. Inevitably that additional fiscal stimulus would have sparked an increase in interest rates, quickly extinguishing any of the small income gains most wage and salary earners would have gained from National's tax cuts.

"Dr Brash would be better off saving the $90,000 cost of the postcard campaign and investing in some sensible economic advice because clearly he's forgotten all the prudent lessons he learned while Reserve Bank governor.

"His credibility is shot. The rating agency, Standard & Poor's, that he once respected, said yesterday tax cuts like Australia's were "very short sighted." It said my Budget last month was "responsible."

"Standard & Poor's believes we have got the balance right - getting debt to prudent levels, investing in infrastructure and building up assets in the New Zealand Superannuation Fund. It backs our strategy of future proofing the economy to meet the challenges of an aging population.

"Who would you rather believe?"

ENDS

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