Adams Amy: Questions for Oral Answer — Questions to Ministers 
Adams Amy: Questions for Oral Answer — Questions to Ministers 
[Volume:669;Page:15644] 
3. 
AMY ADAMS (National—Selwyn) 
 to the  
Minister of Finance 
: What reports has he received on the economy? 
Hon BILL ENGLISH (Minister of Finance) 
: 
 Yesterday we received a report from the credit-rating agency Standard and Poor’s pointing to the country’s longstanding external imbalances as a risk. The ratings agency concluded that this external debt driven mainly by private sector debt leaves us vulnerable as a country. The Government identified those risks 2 years ago and set out on a programme to address them. Standard and Poor’s noted the New Zealand Government’s commitment to getting back to a Budget surplus by 2016 and acknowledged that New Zealand had outperformed most advanced economies in the past 2 years. However it said that the negative credit-rating outlook reflected risks stemming from long-running external debt particularly the current account deficit and relatively high levels of foreign debt. 
Amy Adams 
: What trends are evident in the external imbalances highlighted by Standard and Poor’s? 
Hon BILL ENGLISH 
: Where Standard and Poor’s referred to New Zealand’s savings record we are seeing a few early signs that those indicators are starting to improve. Households are starting to save and reduce debt rather than continue to borrow and spend. It is also evident that our external debt appears to be rising more slowly than we had anticipated. However it will take a concerted effort over a number of years—I would estimate anything from 5 to 8 years—to deal with the longstanding external imbalances. International financial markets are now much more sensitive about how much more debt countries are carrying and whether that debt is growing. On current projections New Zealand’s external debt will continue to grow from around $160 billion currently to somewhere over $200 billion in the next 4 or 5 years. We now have one of the highest rates of external debt in the developed world. 
Hon David Cunliffe 
: Does he still maintain that the removal by Standard and Poor’s of the negative watch following his 2009 Budget was a “verdict” on that Budget; if so does he now admit that downgrading the outlook can only be a verdict on the policies he has implemented since that date? 
Hon BILL ENGLISH 
: To the first question yes; in respect of the second question no. Most people who have observed this situation are a bit puzzled. In fact last year we had conditions where the statement that Standard and Poor’s has made might have been warranted but most of the imbalances it refers to in the statement are better now than 12 months ago when it lifted the negative outlook. 
Amy Adams 
: What policies has the Government introduced to address the imbalances highlighted by Standard and Poor’s? 
Hon BILL ENGLISH 
: Fixing our external imbalances will take a concerted effort over a period of years and we took some first steps in Budget 2009 when we turned round post-election forecasts of never-ending deficits and ever-increasing Crown debt. That was done to get under control the amount of borrowing the Government itself would need to do in overseas markets. Since then we have taken steps to address the majority of the overseas debt which is held by New Zealand households by following policies that tilt our economy more towards savings investments and exports and away from consumption and excessive property speculation all financed by debt. We will also be picking up the work of the Savings Working Group which expects to report to the Government early in the new year. 
Hon David Cunliffe 
: Given that he cancelled in Budget 2009 the second and third rounds of his unaffordable tax cuts in part to avoid a credit-rating downgrade by Standard and Poor’s why did he change his mind and bring in unaffordable tax cuts a year later only to receive the negative outlook that he initially sought to avoid? 
Hon BILL ENGLISH 
: The Government cancelled the further rounds of its 2008 tax cuts because we needed to get on top of ever-increasing debt and deficits. Despite the fact that the National Party had promised those tax cuts we felt it would be irresponsible to follow through on them. The tax package announced in Budget 2010 was as I have described to the member a number of times roughly fiscally neutral—that is the tax cuts were financed by an increase in GST and an increase in taxation of property. Most New Zealanders believe that that has been the right thing to do even if they do not feel that they have a whole lot of extra cash in their pockets.