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State Of It – Is Bill English’s Current Account Optimism In Keeping With National’s Stakeholder Groups?

Published By   /   November 15, 2012  /   Comments Off

State Of It – Is Bill English’s Current Account Optimism In Keeping With National’s Stakeholder Groups?

State Of It – By Selwyn Manning.

Yesterday Finance Minister Bill English informed the Finance and Expenditure Select Committee that the Current Account Deficit will likely peak at around 5-6% of gross domestic product.

The Current Account Deficit is often defined as being the balance between what we owe as a country to overseas entities, and what overseas entities owe us as a nation.

The Current Account Deficit includes not just what the New Zealand Government owes to overseas interests but also what we all owe as well.

This includes all debts, hire purchase, Visa, MasterCard debts, home loans etc etc that the Kiwi population as a whole owes to overseas financiers.

In September Statistics NZ reported that the Current Account Deficit for the June 2012 year, was $10.1 billion (4.9 percent of GDP). This compares with a deficit of $7.4 billion (3.8 percent of GDP) for the June 2011 year.

Statistics NZ’s balance of payments manager John Morris said: “Overall, when compared with the latest quarter, more profits were paid out as dividends instead of being reinvested in New Zealand.”

What he was talking about was how the Current Account balance is affected by overseas investment and commercial interests – what those NZ registered businesses owe their parent companies located overseas.

Where profits made by these companies in NZ are considered as a means to repay debt to the parent company located offshore, or those companies decide to pay profits out in dividends to offshore owners/shareholders – then that profit that is pumped off to satisfy the parent company and its shareholders contributes to NZ’s current account deficit.

Among these companies are most of the Banks operating in NZ, a host of healthcare providers especially in the care of older people, and companies like Serco who the NZ Government has signed up to operate a growing inventory of privately operated prisons.

Here’s a huge side-issue looming: Serco, LiveNews understands, looks likely to become the significant PPP operator to build school infrastructure/classrooms to replace millions and millions of dollars of school buildings that are soon to be classified as leaky buildings.

Now, in a report by Fairfax Journalist, Kate Chapman, Bill English warned the Finance and Expenditure Select Committee that we are getting very close to reaching our tolerated peak: “I don’t think the world will let us run 7 and 8 per cent current account deficits. I think you would get the kind of sharp adjustments that the textbooks tell you would happen in the exchange rate or interest rates. I think the world will punish us more quickly if it gets out of line.”

However, he believed the deficit will not peak at the feared eight percent of gross domestic product level: “I think we would all be worried if we saw an obviously unsustainable current account deficit; building up external liabilities in a world where no-one likes that much.”

That optimism is not sheared by all. In the Fairfax report, Labour MP Clayton Cosgrove asked Bill English whether he knew that the International Monetary Fund, Reserve Bank and Treasury were more pessimistic than he was.

English replied he was more optimistic than other forecasters, who expected New Zealanders to return to their high-borrowing ways.

Summary – including audio from Selwyn Manning & Simon Maude’s The Wire discussion on 95bFM:

Clearly, Bill English’s challenge is to reverse the causes of New Zealand’s current account deficit problems, including the proportion of overseas ownership of New Zealand-based and registered banks, lenders, service providers.

However, unfortunately, the Government is intent on satisfying the status quo on these points.

In short, there has been little solution-based policy emerging from Bill English’s office this term. And that’s a fact that has not been lost on both burgeoning and existing manufacturers and exporters who are turning to opposition political parties and finance/economic spokespersons to discuss economic policy solutions.

The opposition politicians are in turn determined to occupy the debate vacuum that was created in part by the National-led Government’s inertia on these issues.

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