7 Jun 2011

Extra borrowing putting pressure on dollar - English

10:09 pm on 7 June 2011

The Finance Minister has admitted extra borrowing by the Government could be putting upward pressure on the value of the New Zealand dollar.

But Bill English says as the Government reduces its borrowing next financial year, hopefully it will take the pressure off the dollar.

This financial year, the Government has been borrowing $380 million a week - about $100 million more a week than it needs - and is banking the extra money to spend in coming years.

Mr English says that has been a smart move, because the Government has got the money at lower interest rates. However, he concedes that borrowing extra money might have helped push the value of the dollar up.

Mr English says once the Government starts to borrow less from July, that should take the pressure off the dollar.

He told Morning Report the Government has borrowed up to an extra $5 billion at favourable interest rates and has been quite open about this.

Borrowing more sooner makes it slightly cheaper, but in the big picture, New Zealand's debt has increased rapidly and the Government must put a stop to it, he says.

The Treasury says the surging New Zealand dollar has helped push the Government's books deeper into the red. Gross debt at the end of April was $2.9 billion, or 4%, higher than forecast at the time of the Budget in May.

The Treasury says high dollar has increased the value of the Government's investments. That has required the Treasury to request more money from borrowers as collateral, which is recognised as a liability on the Government's books.

However, an expert in debt management believes borrowing extra money will only have only a limited effect on the dollar's value.

Currency manager Derek Rankin told Checkpoint on Tuesday that state borrowing is only one factor in the dollar's rise and does not expect it will come down again when the Government is borrowing less.

Government accused of misleading public

The Council of Trade Unions says the Government is misleading and scaring people by saying it has to borrow $380 million a week.

CTU economist Bill Rosenberg says borrowing needs have gone up - but not by nearly that much and the Government is using some of the money to repay existing debt.

Labour Party finance spokesperson David Cunliffe says the Government has not fully explained why it has borrowed so much.

ACT Party leader Don Brash says the Government cannot afford to be relaxed about debt levels and it should make bigger cuts to spending to bring debt under control.