Does he think that implementing the 2025 Taskforce’s recommendations in November 2009 would have avoided New Zealand’s double credit downgrade; if not, why not?
No; because the reasons for the change in ratings are, first, the long-term accumulation of external liabilities, particularly the fast build-up under the previous Government; and, second, the very depressing mood—if not semi-crisis mood—that is currently enveloping world financial markets. Fulfilling the recommendations of the 2025 Taskforce report would not have made any difference to either of those factors.
In light of Fitch Ratings’ statement that one of the reasons for the downgrade was that public finances have “deteriorated in the past 3 years”, does he accept that his failure to come anywhere near meeting the task force’s goal of reducing spending to 29 percent of GDP is, in part, responsible for the downgrade?
We believe that the Government has made balanced and considered decisions about how to handle a pretty severe recession. There are some, such as the authors of the 2025 Taskforce report, who felt that we should have slashed Government expenditure in the face of that recession, which would, of course, have stalled the economy, cost lots of jobs, and hurt our country’s most vulnerable people. There are others, on the left, who advocated very high levels of stimulus, which would have been irresponsible. The Government has charted a balanced and considered course between those alternatives.
If the Government had had the courage to scrap interest-free student loans, overhaul Working for Families, scrap doctor and pharmacy subsidies for high-income earners, and radically reform the Resource Management Act, as recommended by both the 2025 Taskforce and ACT on many occasions, would the credit downgrade have been more or less likely to occur?
It is not a matter of courage; it is a matter of judgment, and the Government stands by the judgments it made. I think most New Zealanders would stand by those judgments. It is not at all obvious that taking the measures the report advocates would have avoided the downgrade. For instance, if we had followed that path, we may well have stalled economic growth, and we could have ended up with our external liabilities as a higher proportion of GDP than they are. On that basis, the ratings agencies may have been more likely to downgrade us.
Does the double downgrade and the deteriorating state of New Zealand’s public finances not confirm what the 2025 Taskforce and ACT have been saying all along: if the Government is serious about turning round the economy, it would have been better judgment to stop tinkering and start being bold?
The Government has taken a number of bold measures, including a very substantial tax switch back in 2010, and in the last Budget it set out a very tight path to surplus—one of the faster fiscal adjustments among developed economies. In fact, our public finances have stopped deteriorating. The peak of that deterioration was the last financial year. In the current financial year we would expect the deficit to almost halve, then halve again in the subsequent financial year, and by 2014-15 reach surplus.