Exports And The Exchange Rate

With heightened focus on the high New Zealand dollar, CTU Economist Peter Conway said today any discussion on improving support for the exporting sector was welcome.

“Business New Zealand’s 'Export Perspectives' document released today is a welcome contribution to Export Year, and highlights the vital importance of exports to New Zealand,” Peter Conway said.

“However the report fails to analyse the problems around the current account deficit where $12.2 billion of the $14.4 billion deficit is on the investment income side, driven by returns to foreign owned firms and due to bank borrowing to fund mortgages into the inflated housing sector.”

“The policy prescription from Business NZ is the usual grab bag of lower taxes, attacks on the Resource Management Act and reductions in Government spending.”

“However there is common ground on the need to invest in skills, the importance of industry development processes, and continuing to build offshore market assistance, and these are areas that we think should demand greater attention.”

“At the moment the key export issue is the exchange rate, and there are limits to what a small trading nation can do,” Mr Conway said.

“In the long run it is about lifting savings and the value of goods and services so we are less vulnerable to exchange rate fluctuations.”

“But in the short run, we need to look at how we can get lower interest rates so that speculation on the NZ dollar is not such a one way bet for currency speculators. And that means we need some other policy options such as a capital gains tax on investment housing, rather than see the official cash rate almost entirely focussed on attempting to cool the housing market,” he said.