Finance Minister Bill English clearly failed to convince Fitch ratings agency when he met the agency in Washington last week that National has a cohesive economic plan to bring debt under control and promote growth and savings, says Labour’s Finance spokesperson David Cunliffe.
“Fitch today made clear its credit rating cut reflects the National Government’s failure to address structural problems of high private debt and the widening current account deficit,” David Cunliffe said.
“Bill English has been given a ‘not met’ on his national standard for credit. Fitch has clearly laid out the structural policy failure behind the downgrade for which National is responsible:
The high and growing current account deficit;
High external debt (84 per cent private, 16 per cent public) which Fitch describes as an outlier among rated peers;
Structural imbalances between savings and investment.
“National walked away from the reports of their own Tax and Savings Working Groups which issued dire warnings of the same structural problems,” David Cunliffe said. “Previous rating agency reports have also raised similar issues.
“Instead National has preferred to muddle through by closing its eyes to these structural issues and giving trickle-down tax cuts to the wealthy.
“This has made the problem worse, not better, driving the Government’s books deeper into debt and worsening the current account deficit as high-end tax cuts are spent on luxury imports,” David Cunliffe said. “The knee-jerk, short-term response of SOE asset sales does not solve these problems and has not reassured Fitch.
“In contrast Labour has already demonstrated the courage to address the core issues. Labour’s realisation-based capital gains tax (CGT), not including first homes, will dramatically reduce debt and cuts the current tax bias towards property speculation that has fuelled the private debt blowout. Net Crown debt will fall to zero by 2021/22.
“Labour will soon release its savings policy which will dramatically reduce private debt and the current account deficit by putting New Zealand on the path to high private savings,” David Cunliffe said.
“KiwiSaver is a good start but needs to be bigger and better. Instead of building KiwiSaver National has cut it back and undermined confidence in the scheme.
“Instead of building savings through the New Zealand Superannuation Fund, National has deferred payments into the Fund for a decade, creating a $60 billion hole,” David Cunliffe said.
“It’s no surprise then that National’s own 2011 Budget projects rising net international debt for the next five years.
“National has decisively failed the standard it set itself that the primary objective of its budgets was to avoid the credit rating downgrade (see attached quotes) that happened this morning,” David Cunliffe said.
“By Bill English’s own admission, he did not see this coming , yet Labour, the Government’s own tax and savings working groups, the OECD, the IMF, Fitch, Moody’s, Standard and Poor’s, the Treasury and the Reserve Bank all did.
“Bill English and John Key have been asleep at the wheel, muddling through while our credit rating burns.”