Fitch warning follows Budget mistakes

David Cunliffe  |  Friday, July 17, 2009 - 14:48

The move by credit rating agency Fitch to place New Zealand on a negative credit watch highlights the shortcomings of the National Government's first Budget, Labour Finance spokesperson David Cunliffe says.

David Cunliffe said it is worth recalling that following the Budget Prime Minister John Key crowed that the Standard and Poors decision not to cut New Zealand’s credit rating was effectively an upgrade.
 
“Bill English and John Key trumpeted the so called Budget day upgrade by Standard and Poors. On the same basis will they now be saying Fitch has delivered an effective downgrade?” David Cunliffe said.
 
“The Fitch report makes clear that New Zealand’s fundamental weaknesses are its historically low national savings rate, its stubborn current account deficit and the accumulation of private debt.”
 
Fitch calls on the Government for a more aggressive fiscal response, but crucially this is as an offset to counterbalance the underlying problems
 
“National’s problem is that many of its policy changes so far go in precisely the wrong direction. Cuts to KiwiSaver and the Super Fund deferrals in particular will worsen the crucial savings gap,” David Cunliffe said.
 
“Slashing of R&D tax credits, knocking the stuffing out of the Fast Forward Fund, and savagely cutting funding from New Zealand Trade and Enterprise grant programmes will make the current account deficit worse and impede the export led recovery.
 
“These steps were taken in the Budget at the expense of New Zealand's long-term economic well-being.
 
“No wonder Fitch is worried when KiwiSaver was the first real attempt to lift private sector household savings in New Zealand, and National’s response has been to undermine it,” David Cunliffe said.
 
“There is broad agreement on the nature of many of the key problems. National’s solutions are either unclear or unhelpful. John Key’s speech this week obviously did nothing to reassure Fitch who ignored it and proceeded with the downgrade immediately after.
 
“There seems to be a total disconnect at the top.
 
“I find it astounding that on Tuesday this week Reserve Bank Governor Alan Bollard left us in no doubt that Kiwis must save more for New Zealand to be less reliant on foreign funds, and yet the next day John Key’s speech on the economy totally omitted any discussion of savings being important for New Zealand’s future.”

http://www.labour.org.nz/articles/keeping-kiwis-work