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Govt Urged To Reconsider Timing Of Emissions Scheme

Fuseworks Media
Fuseworks Media

The Government is being urged to reconsider the timing of its emissions trading scheme as the world economy comes under increasing stress.

Reserve Bank governor Alan Bollard has warned that the scheme will add to inflationary pressures in this country next year.

With inflation running at 3.2 percent, compared to the Reserve Bank's target of 1 to 3 percent on average over the medium term, Dr Bollard has kept this country's official interest rate at a comparatively high 8.25 percent.

Today Wellington Regional Chamber of Commerce chief executive Charles Finny outlined steps he thought the Government should be taking in light of the turmoil on world markets.

Firstly, now was not the time to be sending negative signals to international investors, so the Government should be agreeing to the sale of Auckland International Airport shares, Mr Finny told Radio New Zealand.

"Secondly, we don't think that this is the time to be imposing costs on our economy that no other economy in the world is going to be facing, so we need to really think about the timing of our emissions trading regime."

Thirdly he was looking for a budget this year that boosted productivity, rather than one containing a series of "unconstrained handouts".

"Let's hope that the warning signs out there internationally are so large that the politicians do the right thing," he said.

The chamber was "quite hopeful" that towards the end of this year Dr Bollard would accept that higher interest rates had succeeded in cooling down many of the sources of domestic inflationary pressure and would begin to start cutting interest rates.

He did not think New Zealand's economic position was "nearly as dire" as that of the United States, so perhaps Dr Bollard had a bit of time on his hands before starting to cut.

This country was somewhat fortunate in that its major trading partner Australia was growing reasonably well, and was also becoming increasingly integrated with what was happening in China, which was still growing fairly well, Mr Finny said.

But if the US and other parts of the world went into recession, major trading countries such as China would start feeling the heat.

NZX chief executive Mark Weldon called on the Reserve Bank to start making interest rate changes now, and avoid the risk of waiting until it was too late to do so.

Clearly on Tuesday (local time) the US Federal Reserve would make announcement that would likely see US interest rates fall another 50 or 75 basis points, Mr Weldon said.

At that stage New Zealand's interest rate differential with the US would be more than 6 percent, which was not sustainable in capital markets.

"Would you take inflation risk driven by the implementation of a carbon trading scheme, which is really a one-time price change, or would you start to do something about the real economy," he said.

"New Zealand is a small and an open economy and I think we really need to do something."

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