KEY POINTS:
The economy is continuing to grow unsustainably fast, Finance Minister Michael Cullen warned today.
"Growing demand and growing incomes have contributed to persistent inflation, high interest rates and an over-valued exchange rate, all of which put pressure on the productive sector."
The Government was responding with a three-fold strategy, Dr Cullen said in a speech.
Firstly, taking into account contributions to the New Zealand Superannuation Fund, the Government was removing demand from the economy.
Secondly, the expansion of KiwiSaver was increasing household saving and would take pressure off monetary policy.
Thirdly, steps had been taken to increase the so-called speed limit of the economy -- the speed at which the economy could sustainably grow without building up unsustainable pressure.
Such measures included business tax reform, measures to help businesses with innovation and expansion in overseas markets, and steps to lift the delivery of skills through tertiary institutions.
"If we ran a looser fiscal policy, the Reserve Bank would certainly increase interest rates further," Dr Cullen said.
"The exchange rate would stay high, businesses would be punished and our overseas debt would increase substantially."
Dr Cullen's comments come as it was revealed that the New Zealand government's operating surplus for the 11 months to May 31 was $7.2 billion, $599 million or 9.1 per cent above forecast due to higher investment gains.
The Treasury revealed that investment income for the government pension fund and other agencies was $500 million above forecast while expenditure was $100 million lower than expected. Tax revenue was in line with forecasts.
The operating balance before revaluations and accounting changes (oberac), which strips out unrealised investment gains, was $6.805 billion, $206 million higher than forecast.
The Government's net cash position, the difference between all income and spending -- operational and capital -- was a surplus of $2.27 billion compared with a forecast surplus of $2.01 billion.
The Treasury said it expected both operating surplus and net cash position for the full-year to June 30, due to be released in September, to be higher than forecast.
Net government debt stood at $4.123 billion or 2.5 per cent of GDP, compared with a forecast for 2.7 per cent of GDP.
New Zealand is effectively debt free when the assets of the government's NZ Superannuation Fund are taken into account, with the overall balance being a surplus of $8.7 billion, $508 million above forecast.
The Treasury forecast an operating surplus of $6.568 billion for the fiscal year to June 30, 2007 in the government's May budget.
- REUTERS, NZPA
