27 Oct 2009

English rejects call for further spending cuts

3:40 pm on 27 October 2009

The Finance Minister is rejecting calls from Federated Farmers for further cuts to government spending in order to rein in the rising New Zealand dollar.

Bill English says the Government needs to take a considered approach to spending decisions, as people need certainty about what public services will be on offer.

He says services such as Working for Families and interest-free loans for students need to remain in place during the recession.

But Mr English told Morning Report that government departments are already being urged to get used to little or no extra money from now on.

He admits the dollar is higher than the Government would like, but says there is little that can be done.

At this stage in a recession, he says, the kiwi would usually be lower, but the weakness of the US dollar is offsetting that.

Risk of cash rate becoming 'irrelevant'

Mr English was responding to a call from Federated Farmers, which says the Government risks making the Official Cash Rate irrelevant if it does not cut back the spending and borrowing that is driving up the dollar.

Federated Farmers is calling on the Reserve Bank to cut the cash rate by 50 basis points, or half a percent, when it makes its monetary policy statement and Official Cash Rate announcement on Thursday.

The group's economics spokesperson, Philip York, says however that even a cut like that would not be enough to drive down the kiwi.

Mr York says the Government's demand for debt is undermining monetary policy and making the cash rate irrelevant. The rate of borrowing - more than $1 billion a month - is driving the dollar up, he says.