17 May 2011

PM dismisses ratings agency fears

11:59 am on 17 May 2011

The Government has dismissed fears expressed by credit ratings agency Standard and Poor's about proposed cuts to KiwiSaver in Thursday's Budget.

The ratings agency says reducing KiwiSaver tax incentives by themselves could push New Zealand further into debt and would need to be part of an overall package to boost national savings.

Mr Key doubts the suggestion by Standard and Poor's New Zealand analyst Kyran Curry that KiwiSaver cuts might have a negative impact on national savings.

Kyran Curry's a bright boy so I'm sure he can work out that if the Government actually stops dis-saving and the private sector starts saving, it increases national savings.

In response to a question about KiwiSaver, Mr Curry said it was possible cuts could have negative impact. He says raising overall national savings is important.

It's one of many things that would improve the external position for New Zealand in the medium term, so a range of incentives to boost national savings would be an important factor that would support the credit rating for New Zealand in the medium term.

Finance Minister Bill English is confident the ratings agency will be reassured by the Budget, which he says is focussed on lifting national savings.

Bill English says the package will include cuts to public spending, as well as boosting household saving.

Standard and Poor's warned last November of a credit rating downgrade if debt continued to mount, potentially costing the country millions of dollars in higher borrowing costs.

The aftermath of the February earthquake and continued weakness in the economy has put the Government on track for a record Budget deficit, as high as $17 billion.