Bill English MP
National Party Finance Spokesman

18 May 2007

Govt spending keeps interest higher for longer

National Party Finance spokesman Bill English says the money-go-round Budget will mean homeowners are forced to pay higher interest for longer.

“Households hoping to benefit from KiwiSaver will be paying for it with higher interest rates as well as higher taxes.”

Treasury is forecasting the 90 day interest rate will climb to 8% next year from an average of 7.8% this year, indicating they believe the Reserve Bank will raise interest rates again.

This forecast is backed up by bank analysis showing that the Budget spend is significantly larger than expected.

“This analysis contradicts Dr Cullen's claim that his Budget will have no impact on interest rates.

“The Reserve Bank Governor was already saying Labour’s big spending was causing him headaches, and Michael Cullen has spent even more than many were expecting.

“This year’s Budget cannot be taken in isolation. Dr Cullen has increased spending at twice the rate of growth, and he has ignored repeated warnings that he must be more focused with his spending.

“If Dr Cullen had done so, the personal tax cuts he says we can’t afford until election year could have been delivered far earlier.

“Dr Cullen has designed a Budget that will require households to tighten their belts, so he is able to spend their taxes to win their votes in the 2008 election.”

Today’s BNZ Markets Outlook report makes similar conclusions about interest rates. It says ‘he has provided sufficient fiscal stimulus to put further pressure on the central bank’.

“New Zealand already has the highest interest rate in the industrialised world thanks to Dr Cullen’s economic management. The Doctor’s prescription yesterday is set to make it even worse.”

ENDS

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