10 Nov 2011

Reserve Bank comfortable with National, Labour fiscal policy

7:02 pm on 10 November 2011

While National and Labour attack each other's spending promises, the Reserve Bank is comfortable with both parties' commitment to getting the public finances back into surplus.

Treasury figures released on Thursday showed the Government's books are deeper in the red than forecast.

In the three months to the end of September, the operating deficit was $2.48 billion, excluding investment gains and losses.

That was $210 million higher than forecast, due to a lower-than-expected tax take.

Once investment gains and losses are included, the deficit for the first three months of the financial year was $6.996 billion, in line with forecasts.

Separately, the Reserve Bank highlighted the need to get public debt under control as one factor in ensuring the New Zealand economy can survive any future financial shocks.

Labour Party leader Phil Goff says warnings about risks to the economy simply confirm his party is on the right track.

He said a capital gains tax as proposed by Labour is "ongoing revenue to invest in wealth and the future of this country" while National's policy of partial asset sales would mean that once they were sold, both they and the dividend stream are lost.

National's leader John Key said his party is being very cautious while Labour had "spent $16 billion of money they don't have on this campaign trail."

"We're out there promising to spend any money that we might spend by matching it with revenue that we've actually got, and we're being very conservative.

"Our books are going to be back in order within three to four years."

The Reserve Bank's Deputy Governor, Grant Spencer, said keeping public debt under control was important.

"We certainly support the policy of both the Government and the Opposition of consolidating the public debt and moving back to surplus. We think it is achievable."

Mr Spencer said while public debt in New Zealand had increased, it remained relatively low by international standards.

National Party finance spokesperson, Bill English, said the tax take should pick up during the year but getting back to surplus will require spending restraint for many years.

The Treasury expects investment losses to turn into gains during the year but notes that global equity markets are volatile.

It is still forecasting a $10.9 billion deficit for the full year.