Investment deficit still main problem with current account - CTU

New Zealand’s current account deficit continues at worrying levels and is fuelled by income going to overseas investors, said CTU Economist Bill Rosenberg today.

“The Government has used the effect of the deficit on New Zealand’s sovereign credit rating as a reason to reduce the stimulus to the economy below what is needed to address the high level of unemployment which is forecast to rise to 8% next year,” said Rosenberg.

Almost nine in every ten dollars of the $15.2 billion deficit ($13.4 billion or 88%) for the year ended March is due to the deficit on investment income which is a result of the very high levels of overseas liabilities. These liabilities are partly debt, driven by continuing bank borrowing, and are compounded by high levels of overseas ownership of New Zealand firms, whose dividends far outstrip the income from New Zealand investment in firms overseas.

“We are in effect having to borrow to pay for the interest and dividends on those overseas liabilities,” continued Rosenberg. “This is turn pushes up the value of the New Zealand dollar, penalising exporters.”

“While there is a welcome and expected improvement in the balance on trade in goods, action needs to be taken to reduce our reliance on overseas investment and assist exporters and domestic saving. This is not a good time to further reduce oversight on overseas investment as the Government’s current review appears to intend.”