Current account deficit underscores imbalances

While the current account deficit has improved, there is still no room for complacency, Finance Minister Michael Cullen said today.

The September year current account deficit improved to $14.4 billion or 9.1 per cent of GDP, slightly better than market expectations and the first improvement in the annual deficit since March 2003. However, this is not a cause for celebration as it was largely driven by foreigners earning less in New Zealand.

"There are some encouraging signs, in particular an improvement in the goods and services balance," said Dr Cullen. "This has been driven by higher export volumes and strong world prices.

"However, today's figures show we are getting no better at saving. New Zealand's net international debt – the net amount we owe to foreign lenders as a country – rose to $121.2 billion, up $6.1 billion from the June quarter. Overseas borrowing by banks increased by over $21 billion from the September quarter last year.

"This reinforces my messages from yesterday's release of the Budget Policy Statement and Half Year Economic and Fiscal Update – in the short term at least, tax cuts without spending reductions would fuel inflation, aggravate the deficit and lead to higher interest rates and the dollar.

"In the long term we must develop better savings habits if we are to reduce our reliance on foreign capital, strengthen New Zealand's capital markets and meet our individual retirement aspirations.

"The government is leading by example having become a net saver this year and having established the New Zealand Superannuation Fund and the State Sector Retirement Savings Scheme.

"From next July KiwiSaver will also provide helping hand for New Zealanders who want to improve their long term financial security," said Dr Cullen.