Cullen concerned about exchange rate, praises Govt income

By NZPA

Wednesday 6th November 2002

Finance Minister Michael Cullen has expressed some concern for New Zealand's exchange rate, particularly against Australia's, if there is a fall in the United States dollar over the next six to 12 months.

He told Parliament's finance and expenditure select committee today that the kiwi-aussie cross rate was already towards "the top end of the comfort zone" for the New Zealand manufacturer.

But he was reluctant to comment further on what impact the strengthening New Zealand currency could have on the economy, particularly if it hit 50 US cents. The kiwi is currently trading at US49.42c.

"Clearly a rise in the New Zealand dollar against the US will reduce the New Zealand dollar income for those exporters," Dr Cullen said.

"On the other hand, I think you have to say that if anybody's been investing in the tradeable sector on the assumption that the New Zealand dollar is going to stay down in the low US40s ... then they are making a fairly unwise judgement, given the long-run perceptions of New Zealand dollar values."

Answering questions about the $242 million loss on the Government Superannuation Fund, the minister said the fund would be reviewing its asset allocations .

"They have not done worse than the market average and this is a fund that is a long-term fund."

The GSF lost a net $242 million in its international equities portfolio at June 30, which was offset by a $50 million gain in currency hedges and other income.

Dr Cullen also said the Government's Oberac (operating balance excluding revaluations and accounting policy changes) was tracking "significantly above" Budget night 2001 forecasts.

"We were forecasting a $9.5 billion gap between net worth and net debt. We're now down to $1 billion gap between net worth and net debt ... and that puts us in a position where we have both monetary policy and fiscal policy headroom compared to many other developed countries in the light of present uncertainty."

Dr Cullen said they were "the strongest Crown account results since about 1995" as far as the Oberac was concerned.

In September the financial operating balance for the year to June came in at a surplus of $2.327 billion, $92 million below the June forecast.

But the Oberac, which the Government preferred to focus on, came in at $2.751 billion, some $539 million better than forecast.

Dr Cullen said some fiscal forecasts of government revenue seemed more negative than necessary. Tax flows were ahead and, despite concerns, they had not reversed.

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