Cunliffe David: Questions for Oral Answer — Questions to Ministers 
Cunliffe David: Questions for Oral Answer — Questions to Ministers 
[Volume:669;Page:15642] 
1. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
 to the  
Minister of Finance 
: What factors were identified by Standard and Poor’s that led to them placing New Zealand’s sovereign credit rating on negative watch? 
Hon BILL ENGLISH (Minister of Finance) 
: 
 In fact the question is not correct. Standard and Poor’s has not placed New Zealand on negative watch. It has affirmed New Zealand’s existing AA+ rating for foreign currency debt but has placed it on negative outlook and those are considerably different labels. Standard and Poor’s has focused its concerns on two issues: one is the bank credit quality of our Australian banks and the second is New Zealand’s high overseas debt level. Both of those have improved in the last 12 months since Standard and Poor’s last lifted the negative outlook status. 
Hon David Cunliffe 
: Why did he not take action in his first Budget to address the savings problems identified by Standard and Poor’s in its first report of December 2008 and does he now consider that taking 2 full years to set up a savings committee is an adequate response? 
Hon BILL ENGLISH 
: No I do not agree with that. In our first Budget the Government had to get hold of ever-rising debt levels and ever-rising deficits. New Zealand certainly would have faced the downgrade if we had allowed the forecasts we had inherited to continue. In Budget 2010 we put in place a tax package designed to assist all New Zealanders to increase their level of savings and to discourage excessive consumption and housing speculation. I think that package will turn out to be a pretty important step towards resolving these issues. 
Chris Tremain 
: What else have credit rating agencies said about New Zealand? 
Hon BILL ENGLISH 
: The other credit rating agency Moody’s Investor Service continues to rate New Zealand as Aaa which is the highest available rating. In fact today Moody’s senior credit officer is quoted as saying: “The nation’s performance during the global financial crisis ‘reinforced’ Moody’s Aaa credit rating for New Zealand—the highest possible.” 
Hon David Cunliffe 
: How did cutting back KiwiSaver and cancelling contributions to the New Zealand Superannuation Fund contribute to addressing the crucial savings deficit identified by Standard and Poor’s? 
Hon BILL ENGLISH 
: In the first place there is a significant improvement in New Zealand’s savings rate. New Zealanders are saving considerably more than they were several years ago and they are spending less. In fact that is one of the reasons why the economic recovery has been more moderate than many people expected. In respect of the two schemes the members refers to in both cases the Government was in the position of borrowing considerable amounts of money to put into savings accounts either its own or New Zealanders’ in KiwiSaver and that of course from a national point of view is a false economy. 
Chris Tremain 
: What other factors did Standard and Poor’s highlight in its assessment of New Zealand? 
Hon BILL ENGLISH 
: Standard and Poor’s repeated what it has regarded for a long time as among the many strengths of the New Zealand economy—that is the fiscal credibility of the New Zealand Government and the monetary policy framework. It also noted that in the last 2 years the New Zealand economy has outperformed most advanced economies. It also noted the economy had entered recession in early 2008 before the global financial crisis but had avoided the deep recessions of many other countries. We have only to see the experience of Ireland which has essentially gone broke to see just how bad things could have been. 
Hon David Cunliffe 
: When Standard and Poor’s said yesterday that New Zealand had “weakened fiscal flexibility” can he explain why he continued with high-income tax cuts that he knew the country could not afford? 
Hon BILL ENGLISH 
: Because the country could afford them as the member will know because he campaigned on it. The Government put up tax on consumption—that is increased GST—increased the taxation of property and offset those tax increases with cuts in tax on income on savings and on company earnings. It is a largely neutral tax package. The reason we have less fiscal flexibility than Standard and Poor’s would like is twofold: one is because the Government has been committed to supporting this economy through the recession with extensive spending on infrastructure public services and continuing transfers to family budgets such as Working for Families; the second is because the collapse of South Canterbury Finance and the Christchurch earthquake have used up something like $3.5 billion to $4 billion of flexibility we would otherwise have had. 
Hon David Cunliffe 
: Which of the Prime Minister’s following statements yesterday is true given that they are mutually exclusive: “Nothing that we have seen has changed from our point of view.” “If anything our position looks stronger from our point of view.” or “We accept that we have had to take the earthquake on the balance sheet and accept that tax revenues are a little bit weaker this year.”; if the latter does he consider crashing corporate tax by 22.4 percent below forecasts and GST by 15.8 percent is “a little bit weaker”? 
Hon BILL ENGLISH 
: The Prime Minister’s remarks sum up the situation which is that nothing material has changed from the point of view of an external credit rating. What has changed is not the situation in New Zealand although there has been some variation with the earthquake and so on but because of the collapse of Ireland the people who lend us money in overseas markets such as the UK and Europe are now much more sensitive to the debt burdens of small economies. That is not a new issue in New Zealand; it is one we have been concerned about for 15 years or so—maybe even 20 years. Although we are in a similar situation those people who lend us what is currently a stock of around $160 billion of debt are more sensitive as to whether we have more debt than a small country can handle. 
Hon David Cunliffe 
: I seek leave to table the statement from Standard and Poor’s on New Zealand’s credit rating outlook which makes no mention whatsoever— 
Mr SPEAKER 
: Leave is sought to table that document. Is there any objection? There is no objection. 
Document by leave laid on the Table of the House.