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Wednesday, March 24

Investment income returns current account to deficit

New Zealand's seasonally adjusted current account balance shows a deficit of $3.1 billion for the December 2009 quarter, Statistics New Zealand said today. This comes after the first surplus in twenty years, which was recorded in the previous quarter. A current account deficit means that New Zealand's overseas expenditure is greater than its earnings abroad.

The change from a surplus to a deficit was driven by an increase in income earned by foreign investors from their New Zealand investments. In the June and September 2009 quarters, after tax profits of foreign owned New Zealand banks were reduced by unusually large company tax transactions. 

In the December 2009 quarter, some of this tax was reversed, contributing to a rise in profits earned by foreign owned banks. 

Setting aside the effects of the unusual tax transactions, profits earned by foreign investors from their New Zealand bank and corporate subsidiaries rose in the December 2009 quarter.

"Company profits are returning to levels seen before the effects of the tax charges and the financial crisis," said government and international accounts manager John Morris.

Foreign-owned companies reinvested a record $1.5 billion of their profits back into the New Zealand economy during the December 2009 quarter. The December 2009 quarter rise in reinvested earnings reflects the increase in profits this quarter, following four quarters of declining profits. Company profits can either be reinvested back into the business, or paid to investors in the form of dividends.

The current account deficit for the year ended December 2009 was $5.5 billion (2.9 percent of GDP), down from $16.0 billion (8.7 percent of GDP) a year ago. Imports of goods fell $8.5 billion over this time, while income from foreign investment in New Zealand fell $6.3 billion.

At 31 December 2009, New Zealand's net international debtor position was $167.5 billion (90.3 percent of GDP). A net international debtor position means that overseas investment in New Zealand is greater than New Zealand investment abroad.

New Zealand's net international debtor position recorded its largest ever quarterly decrease, down $5.3 billion at 31 December 2009 compared with 30 September 2009. The decrease was due to favourable movements in the value of financial derivative contracts, overseas share markets, and the exchange rate.