At present New Zealand is experiencing inflationary pressures stemming mostly from a bulging housing market bubble. To counter this, the Reserve Bank has raised interest rates but this isn't doing much because, as I understand it, the potential to borrow overseas means that Reserve Bank interest rates are not strongly connected to bank lending rates. The high interest rates do lead to currency appreciation as international speculators move in to take advantage of thiss. An overvalued currency is harming our exporters.
What is to be done?
To suggestions from the fiscal side of things:
(1) actually enforce our very flimsy capital gains tax (modify it so it has some teeth).
(2) come up with some sort of hot money currency tax similar to that that Chile used. I'm not an economist so don't know if this is possible in our situation but I'd love to think that someone had at least investigated the idea...
Thursday, May 10, 2007