4 Oct 2011

Govt refuses responsibility for credit downgrades

6:06 pm on 4 October 2011

The National-led Government is refusing to take any responsibility for the decision by two major international agencies to downgrade New Zealand's credit rating.

On Friday morning, Fitch lowered New Zealand's credit rating by one notch to AA, citing the country's rising debt and persistent and widening current account deficits. Standard & Poor's downgraded the country's rating one notch from AA+ to AA in the afternoon.

During a fiery debate in Parliament on Tuesday, Prime Minister John Key and Finance Minister Bill English blamed the former Labour-led Government and economic woes in Europe and the United States for the downgrade.

In 2009, Mr Key warned that a credit downgrade would be disastrous for the New Zealand economy.

Mr Key and his Government then took full credit when a downgrade was averted. But now the Prime Minister says the downgrade is not his fault.

"With the greatest respect, I'm not responsible for what happens in Europe and the United States, nor technically was I in government when there was the enormous build-up in private sector debt."

Instead, Mr Key says an increase in private sector debt when Labour was government has helped contribute to the downgrade.

Labour's finance spokesperson David Cunliffe pointed out that the last time New Zealand's credit rating was downgraded was in 1998 - also under a National-led Government.

Stronger growth 'may make deficit worse'

Finance Minister Bill English has conceded stronger economic growth might make New Zealand's current account deficit worse as company profits go overseas.

Mr English says the extent of foreign ownership of New Zealand companies means that when profits rise that has a negative impact on the deficit.

The minister says New Zealand's economy is in better shape now than in 2009 when international agencies did not downgrade the credit rating.

He says the economy is expected to grow more strongly over the next three years than it did in the past three, but rising profits will contribute to a negative investment position as foreign-owned firms take their profits overseas.

Mr English says the Government is not considering changes to existing policies to help strengthen domestic savings and the export sector.