Headline: Reserve Bank highlights growing risks to recovery
National has failed to rebalance our economy away from consumption and housing speculation and towards high value-added exports
The Reserve Bank Governor has again highlighted huge imbalances in the economy – imbalances Finance Minister Bill English is failing to manage well, the Green Party said today
Graeme Wheeler has today also made veiled references to New Zealand’s lack of a capital gains tax and the possible need for greater intervention in the currency markets to address the overvalued New Zealand dollar.
“Graeme Wheeler is struggling to manage the growing risks to New Zealand’s economic recovery due to National’s failure to address our overvalued dollar and growing levels of indebtedness,” said Green Party Co-leader Dr Russel Norman.
“National has failed to rebalance our economy away from consumption and housing speculation and towards high value-added exports.
“The Government’s focus on fiscal surplus is a distraction from their wider failure to rebalance the New Zealand economy onto a more sustainable and jobs-rich path.
“The rapid build-up of private debt and rising house prices could lead to an economic shock which would have, in the words of the New Zealand Institute of Economic Research (NZIER), ‘significant ramifications for the financial system, household wealth, and economic activity’.”
Dr Norman highlighted the limitations the Reserve Bank Governor currently faces in trying to address our high and highly volatile dollar.
“The Bank doesn’t have much ammo when it comes to fighting a currency war,” Dr Norman said.
“Increased intervention in the currency market by the Reserve Bank should be ringing alarm bells in the Beehive.
“One way to help would be to trial quantitative easing (QE) in a highly proscribed way. A little QE is likely to go a long way as it signals to the market that the rules of the game have changed.
“And tax on capital gains (excluding the family home) would help take some of the heat out of rising house prices in Auckland enabling Graeme Wheeler to lower the official cash rate which would have a further positive impact on the exchange rate.
“Without a change of economic direction from the National Government, this will not be a strong, sustainable economic recovery.”
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