English expects high kiwi for year or more

Finance Minister Bill English expects a high New Zealand dollar to be a headwind for the economy for the next 12 to 18 months.

Normally when New Zealand started coming out of a recession, the currency dropped against the United States dollar, export prices picked up pretty sharply and banks started lending money again, he said.

When that happened a recovery could be reasonably rapid, with rates of growth of 6 or 7 per cent not being unusual.

But after the last recession the banks were one headwind and were being careful after having a "near-death experience", he told Radio New Zealand yesterday.

Also the New Zealand dollar had not dropped and signs were that the policies of the US, China and Britain meant this country would have to deal with a high New Zealand dollar for a further 12 to 18 months.

What was working for New Zealand was that strong underlying prices for its commodities were holding up, despite the strong kiwi, he said.

Factors behind the commodity prices included the strong growth in Australia and China, which were rapidly becoming New Zealand's major trading partners.

English, who presented the Crown accounts for the year to June on Thursday, acknowledged that a move by households away from borrowing and spending toward paying off debt and saving could mean a lower GST take than expected for the Government.

From October 1, GST was lifted to 15 per cent from 12.5 per cent, while personal income tax rates were cut.

"It's quite possible that with the flattening of economic growth that the Government's going to get less revenue. Now, we'll get a clear picture of that by just before Christmas when we publish a half-year update," English said.

"Even if the tax revenue was down a bit we would be keen to stick to the plan we've outlined."

The latest changes in tax had been fiscally neutral. "There is no room for tax cuts just standing on their own."

English also repeated the Government's position about funding for Auckland mayor-elect Len Brown's ambitious plans for rail in the city.

Any further rail development would need a willingness on the part of Auckland users and ratepayers to pay for it, English said.

The Government was not in a position to be able to rule in or out any Government money for the proposals, as the propositions were still "pretty airy fairy".

"There's a few people in Auckland who want extensive rail through the city. Rail, in our experience as owners of KiwiRail, is horrendously expensive," English said.

"There is a very little return," he said.

"Unless you have millions of people stacked up in high-rise apartments, such as they have in Hong Kong or Singapore, then it almost certainly won't be economic.

"So Auckland has to think through very carefully where they want to put their dollar, and when they've done that, then I presume they'll come and talk to Government."

- NZPA