8 August 2011

S&P finger New Zealand’s on-going economic vulnerabilities

Standard & Poor’s singling out of New Zealand from the Asia-Pacific region as particularly vulnerable to another world economic downturn should cause the National Government to rethink their management of the economy, Green Party Co-leader Dr Russel Norman said today.

A credit downgrade for New Zealand would raise the cost of borrowing across the economy having the effect of supressing economic recovery.

“Standard & Poor’s specific reference to the weaknesses of the New Zealand economy is not a stamp of approval for John Key’s economic direction,” said Dr Norman.

“There are decisions his Government could be taking right now to reduce our vulnerabilities to a downturn in the global economy.

“For example, setting up a borrowing facility to fund their $19 billion expansion of our state highway system over the next ten years is highly risky. This is not the optimal time to be borrowing to build infrastructure that's vulnerable to high oil and carbon prices.

“Borrowing to spend an additional $19 billion on roads at a time when Treasury is forecasting net core Crown debt to reach $73 billion by 2015 is not smart economic management.

“John Key might also like to consider measures to incentivise the faster deleveraging of private borrowing — debt largely taken on over the last decade to speculate in property. Introducing a capital gains tax (excluding the family home), for example, would signal to the private sector that there was going to be no repeat of the previous property bonanza.

“A comprehensive tax on capital gains would also broaden the tax base, strengthening the Government’s ability to weather further uncertainty abroad.”

Dr Norman questioned the record of the Government’s economic management in light of the Global Financial Crisis (GFC) in 2008 and the Christchurch earthquakes.

“The Government’s economic management in the wake of the GFC could have been much better. Tax cuts directed to the top end was the wrong stimulus measure, clearly failing to kick-start the economy,” Dr Norman said.

“Borrowing to rebuild Christchurch instead of striking a levy has left the Government with even more debt, giving them less room to move should the global economy move back into recession.

“Based on his record, John Key can’t afford to be complacent about his economic management,” said Dr Norman.

ENDS

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