What will be the additional weekly cost of borrowing for someone with a $300,000 home mortgage should interest rates increase by 0.3 percent as a result of the recent double credit rating downgrade?
If mortgage interest rates increase by 0.3 percent for any reason, then the cost, I think, would be about $17 a week. Of course, what has actually happened is that floating mortgage rates are at a 45-year low. Back in 2008 the fixed mortgage rate was, I think, over 10 percent and now it is about 6 percent, and that is worth some $200 a week in benefit to the average New Zealand household.
So does the Minister of Finance accept that if there is an increase in mortgage rates of, say, 0.3 percent, someone with a home mortgage of $300,000 will be paying an extra $17 a week in order to service their mortgage?
There is a mathematical calculation about 0.3 percent, which equals $17 a week. But two things are happening with interest rates. One is that around the world interest rates have been dropping, so that is a downward pressure on interest rates—for not very good reasons, I might say. The conventional wisdom is that a credit rating downgrade would push up interest rates; we have not seen any evidence of that yet, but on any given day one does not quite know where the floating interest rate will come out.
Has he seen Standard and Poor’s statement saying that the responsibility for the downgrade lies in part with the Government, because “the country’s fiscal position has been weakened by Christchurch earthquake-related spending pressures …”; if so, does he accept that his decision to borrow to pay for the rebuild, rather than striking a temporary levy, has led in part to the downgrade?
I do not think so, although I understand the proposition the member is putting forward. The fact is that the levy, as he proposed, I think, was a 10-year levy, and it simply would not have raised the cash needed now to meet the welfare requirements, the payouts—for instance, for the red zone—the ongoing funding of infrastructure rebuilding, and the ongoing operation of the Earthquake Commission, which is now very large. We simply would not have raised the cash in time. There will, of course, be effective levy increases as a result of the earthquake. People who are renewing their insurance premiums right across New Zealand are finding that, and it is likely the Earthquake Commission levy may have to increase significantly as well.
Does he accept that a temporary, targeted earthquake levy, raising $1 billion a year, as the Greens proposed, would have reduced the fiscal pressure on the Government, hence reducing the likelihood of a credit downgrade by Standard and Poor’s?
I do not think it would have made much difference. The reasons the rating agencies have talked about are, I think, quite familiar: the build-up of external debt to the rest of the world, which accelerated through the first half of the last decade, and the Government’s fiscal position being a bit weaker because, through the recession, we continued to fund public services. His levy would not have made enough difference to the earthquake funding to change anything about the credit rating.
Does he appreciate that a person on the average wage with a $300,000 mortgage is better off paying an earthquake levy of about $1 a week than paying $17 a week extra as a result of increased mortgage costs that have come, or may come, with the downgrade?
I do not think any prospective levy could have been that low. The Government has made a decision about Christchurch that has enabled us to demonstrate a very strong and clear commitment to the rebuilding of that city, and we have no reason to rethink that decision.
Is he concerned that most New Zealanders will now be paying higher interest rates to foreign-owned banks as a result of the double credit rating downgrade, rather than paying a targeted levy that would help pay for the rebuild of Christchurch?
I do not see that those are explicit trade-offs. I understand the point that the member is trying to make, but that is not how the Government sees the issue. We have made decisions about funding the earthquake and about the levy, which we do not think would have made any difference to the credit rating outcome.
Does he stand by the answer he gave when I questioned him in March about the risks of a credit downgrade in relation to borrowing to pay for the Christchurch rebuild: “We are very conscious of the risks of a downgrade and believe that we are making the right considered choices to deal with those risks.”? Does he now accept that his considered choices were not the right ones, that we need a new plan to limit Government borrowing, and that an earthquake levy could be part of that plan?