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Deficit still underlines need to save

-press release

Thursday 28th June 2007

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Finance Minister Michael Cullen today welcomed the narrowing of the annual current account deficit, but warned New Zealanders still need to save more as the deficit remained large by international standards.

The annual current account deficit for the March quarter was $13.9 billion, 8.5% of GDP, an improvement on the $14.9 billion deficit from the previous year. This was driven largely by an improved trade balance with increasing dairy exports a major factor.

"Some further improvement is expected this year as dairying receipts will grow in line with higher commodity prices," said Cullen.

"However, there is still disturbing evidence about New Zealander's appetite for debt.

"We are continuing to borrow abroad to finance domestic consumption. As a nation we now owe $15 billion more than we did in March last year. New Zealand's net liabilities to the rest of the world now stand at $145 billion.

"Much of this deterioration has been driven by increased borrowing by banks.

"The Labour-led government is doing its bit with prudent fiscal management. Our net lending position stands at $6.5 billion.

"This is a timely reminder that New Zealanders need to save more to reduce our dependence on the savings of foreigners.

"KiwiSaver is officially launched this Sunday. This is the best opportunity in a generation for New Zealanders to build a substantial pool of savings. This will not only provide individuals with financial security in retirement, but will provide more New Zealand capital for local businesses to expand."

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