Fitch Ratings has given the thumbs down to the National Government's management of the New Zealand economy by downgrading the country's creditworthiness for failing to address major structural savings and investment imbalances in our economy, Green Party Co-leader Russel Norman said today.
Dr Norman was responding to Fitch Rating's recent downgrade of New Zealand's sovereign credit rating from AA+ to AA, due primarily to a widening current account deficit — a deficit the Reserve Bank is forecasting to worsen.
"Fitch's downgrade recognises the significant vulnerabilities that have persisted in our economy under the National Government's economic management. It is a vote of no-confidence by the Prime Minister's former colleagues in his management of the New Zealand economy," said Dr Norman.
"The primary reason for the downgrade was a worsening outlook for our current account deficit due largely to high levels of foreign ownership in the New Zealand economy."
The near doubling of the current account deficit from $3.6 billion to $7.2 billion was due to increased flows of dividends and profits to overseas owners of New Zealand companies. This explains the timing of Fitch's announcement.
"As the economy slowly recovers, increasing flows of money are going offshore in the form of dividends and profits to overseas owners of New Zealand companies and farms," said Dr Norman.
"John Key's Government has failed to address the unsustainably high levels of overseas ownership of the New Zealand economy. In fact, their plans to sell state-owned companies will only make matters worse.
"Privatising our state-owned enterprises, which will inevitably lead to significant overseas ownership of them, will worsen the current account deficit as even greater levels of profits will flow offshore to their new owners.
"High levels of foreign ownership create a fundamental vulnerability in our economy to capital drain. We can solve this by retaining ownership of our state-owned enterprises and through higher foreign ownership tests, including an outright ban on the sale of land to non-citizen, non-resident owners.
"On the fiscal side of the ledger, National must accept responsibility for their poorly-timed and poorly designed tax cuts — cuts which fuelled record levels of Government borrowing and failed to effectively stimulate an economy in recession.
"The Government's failure to consider revenue-raising options in the form of an earthquake levy to help pay for the rebuilding of Christchurch or the introduction of a capital gains tax (excluding the family home) to address the tax incentive to speculate in property, is now being shown up as short-sighted and will result in the cost of borrowing for all of us going up as a result of the downgrade."
Of the other two major rating agencies, Moody's has New Zealand on a stable credit outlook while Standard & Poor's has New Zealand on a negative credit outlook.