Story: Balance of payments

Page 1. What is the balance of payments?

All images & media in this story

The balance of payments measures the value of New Zealand’s financial transactions with the rest of the world, such as:

  • payments for imports and from exports of goods and services
  • money received or paid on these investments in the form of dividends or interest
  • transfers to or from foreign residents, such as government food aid or money sent by individuals to relatives overseas
  • investment in physical assets such as land, or in financial assets such as stocks and bonds.

Black budget

The most notorious balance of payments crisis in 20th-century New Zealand occurred in late 1957. It led Finance Minister Arnold Nordmeyer in 1958 to issue a budget that tried to reduce demand for imports through additional taxes on cars, alcohol and tobacco. Since these were among the pleasures of the typical ‘Kiwi bloke’, Nordmeyer earned a reputation as a ‘wowser’ and his budget was labelled ‘black’.

Balance of payments deficits

The balance of payments shows whether New Zealand is in overall debt or credit to the rest of the world. The state of the balance influences levels of confidence in the security of investments in New Zealand, and in the country’s overall economic health. New Zealand is usually in deficit on the balance of payments current account, which can make the terms under which New Zealand borrows money to finance that deficit tougher than they would otherwise be.

At times ‘payments crises’ have arisen because overseas income has fallen sharply or overseas payments have risen sharply. Historically, governments attempted to alleviate such problems by cutting public spending, increasing interest rates, lowering the exchange rate or restricting imports – or the demand for them. Since the 1980s governments have not been so interventionist.

Three accounts

In New Zealand the statement on the balance of payments is compiled and published each quarter by Statistics New Zealand, a government department, in accordance with international reporting standards. The statement is broken down and presented in three separate categories or ‘accounts’:

  • current account
  • financial account
  • capital account.

Each account covers different types of international transactions.

How to cite this page:

C. John McDermott and Rishab Sethi, 'Balance of payments - What is the balance of payments?', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/balance-of-payments/page-1 (accessed 17 November 2018)

Story by C. John McDermott and Rishab Sethi, published 11 Mar 2010