New Zealand—Credit Rating

Hon BILL ENGLISH Link to this

No, I do not agree with that. In our first Budget the Government had to get hold of ever-rising debt levels and ever-rising deficits. New Zealand certainly would have faced the downgrade if we had allowed the forecasts we had inherited to continue. In Budget 2010 we put in place a tax package designed to assist all New Zealanders to increase their level of savings and to discourage excessive consumption and housing speculation. I think that package will turn out to be a pretty important step towards resolving these issues.

Hon BILL ENGLISH Link to this

The other credit rating agency, Moody’s Investor Service, continues to rate New Zealand as Aaa, which is the highest available rating. In fact, today Moody’s senior credit officer is quoted as saying: “The nation’s performance during the global financial crisis ‘reinforced’ Moody’s Aaa credit rating for New Zealand—the highest possible.”

Hon BILL ENGLISH Link to this

In the first place, there is a significant improvement in New Zealand’s savings rate. New Zealanders are saving considerably more than they were several years ago and they are spending less. In fact, that is one of the reasons why the economic recovery has been more moderate than many people expected. In respect of the two schemes the members refers to, in both cases the Government was in the position of borrowing considerable amounts of money to put into savings accounts, either its own or New Zealanders’ in KiwiSaver, and that, of course, from a national point of view, is a false economy.

Hon BILL ENGLISH Link to this

Standard and Poor’s repeated what it has regarded for a long time as among the many strengths of the New Zealand economy—that is, the fiscal credibility of the New Zealand Government and the monetary policy framework. It also noted that in the last 2 years the New Zealand economy has outperformed most advanced economies. It also noted the economy had entered recession in early 2008, before the global financial crisis, but had avoided the deep recessions of many other countries. We have only to see the experience of Ireland, which has essentially gone broke, to see just how bad things could have been.

Hon BILL ENGLISH Link to this

Because the country could afford them, as the member will know because he campaigned on it. The Government put up tax on consumption—that is, increased GST—increased the taxation of property, and offset those tax increases with cuts in tax on income, on savings, and on company earnings. It is a largely neutral tax package. The reason we have less fiscal flexibility than Standard and Poor’s would like is twofold: one is because the Government has been committed to supporting this economy through the recession, with extensive spending on infrastructure, public services, and continuing transfers to family budgets, such as Working for Families; the second is because the collapse of South Canterbury Finance and the Christchurch earthquake have used up something like $3.5 billion to $4 billion of flexibility we would otherwise have had.

Hon BILL ENGLISH Link to this

The Prime Minister’s remarks sum up the situation, which is that nothing material has changed from the point of view of an external credit rating. What has changed is not the situation in New Zealand, although there has been some variation, with the earthquake and so on, but because of the collapse of Ireland the people who lend us money in overseas markets, such as the UK and Europe, are now much more sensitive to the debt burdens of small economies. That is not a new issue in New Zealand; it is one we have been concerned about for 15 years or so—maybe even 20 years. Although we are in a similar situation, those people who lend us what is currently a stock of around $160 billion of debt are more sensitive as to whether we have more debt than a small country can handle.