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Downgrade reflects international situation -- English

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Fuseworks Media
Fuseworks Media

(Adds Phil Goff)

Wellington, Nov 23 NZPA - The downgrade of New Zealand's outlook from stable to negative reflected increasing concerns internationally about external debt rather than a worsening situation here, Finance Minister Bill English says.

However Labour leader Phil Goff said it was a result of failing to address savings and undermining efforts put in place by the previous Government.

The international credit rating agency, Standard and Poor's, yesterday revised New Zealand's outlook from stable to negative.

Prime Minister John Key yesterday said the shift appeared to be about a stronger focus on countries with high levels of overall indebtedness.

Mr English today said New Zealand had made some improvements but the external environment had changed with heightened concerns about what was happening in Ireland and other European countries.

"Our situation has actually improved somewhat over the last 12 or 18 months but the people who lend us money are getting more sensitive to the amount of debt that New Zealand does owe them," he told Radio New Zealand.

The Government had been trying to get on top of the foreign debt problem, such as through its "tax switch" where GST was increased but personal tax rates reduced.

"Which was designed explicitly to dampen the excessive consumption of the last 10 years and therefore dampen our demand for exports, to cut taxes on savings and investment so we could encourage more savings because their concern is New Zealand's external debt," he said.

While the Government owed some of the debt, most was held by households so the Government could take only indirect measures such as tax changes.

Overall, he thought the impact of the negative outlook would be minimal.

"This is more of a warning than anything...if our external debt gets significantly worse than people expect then the credit rating agencies might decide we are more of a risk."

Mr Goff said the Government's cut backs to KiwiSaver and freeze on payments to the Cullen Fund (superannuation) had an impact and it had no plan for an economic recovery.

"That has to be a judgement on this government, it's about inadequacy of savings, this Government cut savings through KiwiSaver, cut savings through the Cullen scheme."

Under its watch the Government has seen surpluses turn to deficits -- this coincided with the global financial crisis. Mr Goff said giving $14 billion in tax cuts did not help.

"It has no plan and that's reflected in that credit downgrade," he said.

"The very first thing this Government did was to cut KiwiSaver and to cut the Cullen Fund and what the credit agency has said is that this country is not saving enough."

Under Labour debt had been severely cut back and $2b a year was put into the Cullen fund and it introduced Kiwisaver against National's wishes, Mr Goff said.

Mr Key yesterday said next year's budget could contain measures to encourage people to save more and he was waiting to see what the savings working group suggested.

The New Zealand dollar fell about a cent yesterday afternoon on the news and eased slightly further overnight.

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