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Key Says Budget Will Avert Credit Downgrade

Contributor:
Fuseworks Media
Fuseworks Media
John Key
John Key

Wellington, May 11 NZPA - The May 28 budget will ensure New Zealand is not downgraded by credit rating agencies, Prime Minister John Key predicted today.

There have been concerns that New Zealand's ballooning debt will lead to the agencies cutting its credit rating.

This would push up the cost of the Government's lending programme, as well as the lending rates to the public, as money lenders looked to increase their return due to higher risk.

Asked if the budget would avert this happening today, Mr Key responded with an emphatic "Yes."

Finance Minister Bill English has held talks with the agencies about the Government's plans to bring down projections in debt, but Mr Key said his views were based on debt levels in other countries.

"If I just look at our debt track and I compare that to the OECD debt track for other countries for 2012/2013 year, we have got a substantially lower debt exposure than most other countries," Mr Key said.

The United States was predicted to be at 99.5 percent of GDP, Japan at 220 percent of GDP and Britain more than 100 percent of GDP.

"New Zealand is substantially lower than those numbers. So if we get downgraded, I personally would be very disappointed and very surprised."

The Dominion Post reported this morning that Treasury papers said a downgrade would add $600 million a year to the Government's interest bill.

The paper compared New Zealand's position to Ireland, which was recently downgraded and now pays 1.5 percentage points more than other comparable countries.

Last July New Zealand's sovereign debt was $36 billion, which cost $1.8 billion to service in interest rates.

This would cost $2.4 billion if rates went up 150 basis points.

New Zealand's debt is running at around 25 percent of GDP, but without policy changes this would rise to 70 percent by 2023.

Mr Key said crucial decisions about whether or not to delay tax cuts planned for 2010 and 2011 and whether to suspend payments into the New Zealand Superannuation Fund had been made.

Mr Key has previously raised the possibility of a delay for the promised 2010-2011 tax cuts and today firmed that up even further.

"I certainly wouldn't support a cancellation of tax cuts but I can't rule out a delay," he said.

He said there was "a lot of difference between a cancellation and delay" and that option "could be acceptable" to him.

While tough calls were made, entitlements had been preserved in the budget.

"We've got on top of our debt position, I think the rating agencies will take comfort from what we've done. I think it's going to be a good budget but it's a budget for very difficult times."

There would be more money for health, education and policing.

"There are definitely areas where we are spending more. What we have done is spent our first six months in office sifting through programmes making sure they present value for money where they don't we've cut those.

"And if fact what you will see in the budget is how successful we've been."

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