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Credit Rating Downgrade—Effect

Tuesday 4 October 2011 (advance copy) Hansard source (external site)

Cunliffe5. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance

Does he stand by all statements he has made on the effect of a credit rating downgrade?

CunliffeHon David Cunliffe Link to this

Why did he concede to the Dominion Post that Friday’s double downgrade would impact New Zealanders’ interest rates and home mortgages, and how does he reconcile this statement with that of the Prime Minister in the New Zealand Herald today that that is unlikely?

EnglishHon BILL ENGLISH Link to this

What I have said about interest rates is that, first, conventional wisdom says a change in the credit ratings could push interest rates up, and that, secondly, the best estimate we could find of that was about 0.1 percent. I might say that since the announcement about the credit rating there has been no sign of an increase in interest rates. I think that is because the market at large is focused on much bigger and more concerning issues around Europe and the US, and because it regards New Zealand’s position favourably.

CunliffeHon David Cunliffe Link to this

Does he stand by his claim that the double downgrade will add only 0.1 percent to mortgages, a $170 million-a-year bill to households, and on what basis is this current estimate so much lower than previous official Treasury estimates of 1 to 2 percent, costing the Government $600 million a year—estimates which Treasury has not since rescinded?

EnglishHon BILL ENGLISH Link to this

As I said, Treasury retails the conventional wisdom about it. The evidence is that the market seemed to regard New Zealand’s position as pretty favourable. Claims about the cost of that are a bit rich, coming from a party that oversaw interest rates that were around 10 percent, rather than 6 percent, when it was in Government. Labour did not seem concerned about the impact on households then.

CunliffeHon David Cunliffe Link to this

Does the Minister now regret denigrating the rating agencies like a jilted suitor in comments today, saying they do not run the country; if he does, why is he shying away from responsibility for the high level of private debt and low savings that have so concerned them, when he himself cut KiwiSaver and the pre-funding of New Zealand superannuation?

EnglishHon BILL ENGLISH Link to this

I think what I said was that we do not run the country for the ratings agencies. What we do is make the best decisions, we believe, for the benefit of the New Zealand economy, and the ratings agencies are free to form their opinions about that. I would have expected that that is what most New Zealanders would expect of a New Zealand Government. We are here to increase incomes and create jobs for New Zealanders, and if the rest of the world gets into economic trouble we will continue to make the considerable progress that we have already made.

CunliffeHon David Cunliffe Link to this

Does he stand by his statement that “a downgrade in the middle of a financial crisis would have been quite devastating, but we’re in better shape now”; if so, what part of the financial crisis in Greece, Portugal, Spain, Italy, the eurozone, and the United States has passed him by?

EnglishHon BILL ENGLISH Link to this

Well, the member may recall that back in 2009 the lending markets were closed to New Zealand banks—completely. That is not the case now, and I think the reaction to the change in the ratings demonstrates that the market does regard New Zealand’s position as pretty favourable. The Government has had a huge challenge to undo the enormous damage done by Labour to this economy, and I am pleased with the progress that we have made.

SmithMr SPEAKER Link to this

I have called Amy Adams, and I say to members at the front of the House that members at the back cannot hear me or whom I am calling, and that is not fair.

AdamsAmy Adams Link to this

Has he seen any other assessments of factors that have weakened New Zealand’s credit rating?

EnglishHon BILL ENGLISH Link to this

Yes, I have seen one particular comment that says “there were significant questions unresolved. Our current account deficit was stubbornly high, and the savings deficit … was unsustainable. Productivity growth was too low”. That was a statement made by the Opposition finance spokesman, David Cunliffe, in one of those rare moments when he sounded almost as economically logical as the Greens. But since then he has gone backwards.