Balance of trade

Trade surplus grows as Labour launches policy to solve trade deficits

Labour’s much vaunted ‘big tool’ is turning out to actually be David Parker himself.

In his policy release today he claimed:

New Zealand’s monetary policy system was introduced in 1989 and has remained essentially untouched ever since. Like a 25 year-old computer system, it needs to be upgraded.

Our current monetary policy system was designed to deal with the most pressing issue of that time – inflation – as a reaction to the era of double-digit inflation under the National Muldoon Government.

This single minded focus on inflation, however, has had adverse consequences for the tradeable export sector.

New Zealand now has structurally high interest rates, and a persistently over-valued dollar. This contributes to a large current account deficit and high levels of international debt and foreign ownership.

The over-valued dollar and our high interest rates mean our businesses find themselves less able to compete abroad and undercut by imports at home. Our high interest rates also draw in foreign money, which fuels the housing market.

We have low general price inflation, a housing market which is inflating at rapid rates, while our tradable sector is in deflation.

The Reserve Bank attempts to stabilise house prices with higher interest rates. This strangles our exporters who, despite recent drops in commodity prices, face a rising currency.

That is one of the causes of New Zealand’s long-term under-performance in growth and our high level of international debt.

Underinvestment in our export sector has meant fewer jobs and lower wages for Kiwis, and lower export earnings.

Our export base is narrowing, with manufacturers closing and a greater reliance on raw commodities and in particular dairy.

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