Budget fails to rebalance economy

The Reserve Bank has confirmed during the June Monetary Policy Statement review released today by the Finance and Expenditure Committee that structural economic imbalances remain that have not been addressed by Budget 2010, says Labour Finance spokesperson David Cunliffe.

David Cunliffe said the Reserve Bank had confirmed that at least in the short term the Budget had added fiscal stimulus that will put pressure on interest rates because the Government will have to borrow more overseas to pay for tax cuts.

“Budgets documents show us that $460 million will have to be borrowed in year one, $1.4 billion over four years, and, according to Labour’s estimates, $9.2 billion over 12 years.

“High interest rates will attract short-term financial flows and that could contribute to a renewed property cycle.”

The Reserve Bank confirmed that investment income is significantly imbalanced, ‘due to higher flows of income coming off foreigners’ investment here compared with vice versa’.

“New Zealanders clearly need to save more over time, but Budget 2010 doesn’t provide an environment that encourages this. In fact, it is clear the Reserve Bank believes there will at least some resumption of the property cycle,” David Cunliffe said.

As a result, the Reserve Bank confirmed that the current account deficit will widen from 4.3 percent to around 7 percent of nominal GDP by 2013, due to the worsening trade imbalance and widening investment income deficit.

“In short, Reserve Bank evidence supports the case that none of the savings deficit, the property cycle, the resulting current account deficit, or the fiscal pressures on interest rates, have been resolved by this Budget.”

ENDS

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