What is New Zealand’s credit rating and how does that compare with previous ratings?
Following last week’s changes, the long-term foreign currency credit ratings are AA from both Standard and Poor’s and Fitch Ratings, and Aaa from Moody’s. The local currency ratings are AA+ from Standard and Poor’s and Fitch Ratings, and Aaa from Moody’s. All ratings are on a stable outlook. New Zealand’s rating was AAA up to the early 1980s. It then dropped down to AA- through the late 1980s and into the early 1990s. We steadily improved over that decade, and it is disappointing to see that misjudged economic policy through the last decade has led us to the situation of a further ratings change.
Wait a minute; I have not called any member yet. I had better go to the usual practice and go to Peseta Sam Lotu-Iiga for the first supplementary question.
What are the main factors that have put the credit rating under downward pressure?
The ratings agencies have stressed for some time that their view of New Zealand is determined by New Zealand’s large external liabilities, most of which is private debt. It has built up gradually over several decades, but in the time from 2000 to 2008 we had record excessive Government spending. We had a current account deficit of over 8 percent for 4 years, which is almost a record for any country. During that time New Zealand households were spending about $1.11 for every dollar they earned and the tax system was encouraging rampant, debt-fuelled property speculation. Since then the Government has taken several measures to change these dynamics in the New Zealand economy, with some success, but because of the deteriorating global outlook, ratings agencies have become more sensitive to what are now lower external debt levels.
Who was the Associate Treasurer when New Zealand’s credit rating was last downgraded by Moody’s on 24 September 1998?
I am not sure, but it might have been me, and I am very pleased that that was during a period when New Zealand made considerable progress in productivity growth, export growth, and employment growth. That was all squandered by the Labour Government that came afterwards.
How has New Zealand’s financial position changed over the past 3 years?
We have focused on getting through the recession while encouraging more saving and exporting and discouraging excessive property speculation, out-of-control Government spending, and too much debt. By every measure the outlook has improved over the last 3 years. The balance of payments deficit, which was 8 percent for 4 years under Labour—almost a developed-country record—has now halved, households are now saving again, and we will have positive savings rates for the first time in 20 years next year. Government debt will peak at less than the projections when we took office, and our foreign liabilities have fallen by $16 billion over the past 2 years. In the context of a global recession, a New Zealand recession, an economy mismanaged by the previous Government, and the Christchurch earthquake, that is a pretty good result.
What policies will continue to improve New Zealand’s financial position?
Two straightforward policies. One is to ensure that the Government gets to surplus, that its debt stops rising in the next 2 or 3 years, and we begin to pay down that debt. The second is that we develop further our capacity to earn a living by selling goods and services to the rest of the world, rather than speculating and buying houses from each other. It is disappointing to hear that the Labour Opposition does not understand that and has so far trotted out—
Question No. 3, the Hon Annette King. [ Interruption] Question No. 3, the Hon Annette King.