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Labour Says Govt Policies Haven't Helped Savings

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Fuseworks Media
Fuseworks Media
Phil Goff
Phil Goff

Wellington, July 17 NZPA - The Government says it is working on economic problems identified by an international rating agency but Labour believes budget decisions contributed to the negative review announced yesterday.

The Fitch agency revised its outlook for New Zealand's credit rating from stable to negative, saying the country was living beyond its means and households needed to save more.

It maintained the rating at AA plus but said a continuing deterioration in New Zealand's net external debt and liability position would likely lead to a downgrade.

Fitch's head of Asia Pacific sovereign ratings, James McCormack, said today he thought New Zealand's current account deficit was a structural feature of the economy.

"It does tell us the economy as a whole is living beyond its means and borrowing money to finance that," he said.

"When the economy is living beyond its means you can divide it into the public and private sector and the private sector is not saving enough money."

Prime Minister John Key said the outlook review was concerning but surprising, given that Standard & Poor's and Moody's were holding positive outlooks.

Standard & Poor's and Moody's are more influential than Fitch in the international money market.

Mr Key said he doubted Fitch's review would impact on the country's ability to borrow and the Government was addressing issues like the current account deficit by focusing on improving productivity and boosting exports.

Finance Minister Bill English made similar comments yesterday, saying the problems identified by Fitch were the same as those identified by the Government.

"It's telling us there's a bit more work to do," he said.

Labour leader Phil Goff told NZPA the Government should reflect on its policies, particularly those that affected savings.

He said the previous government established KiwiSaver and the New Zealand Superannuation Fund to reverse what had been a very poor savings record over a long period.

"If the problem is that a lot of our current account deficit is caused by borrowing overseas ... then the answer is that New Zealanders need to save more and that is scarcely going to happen if you gut the key vehicle for encouraging savings, which was KiwiSaver, and cease to contribute to the other (the Superannuation Fund)," Mr Goff said.

A spokesman for Mr English said there was no evidence yet that KiwiSaver had increased private sector savings.

"And borrowing to invest in the Superannuation Fund doesn't increase savings, we would be increasing our debt to put that money in the fund," the spokesman said.

Mr McCormack said household saving was particularly low in New Zealand, even lower than in the US, and needed to come up to a higher level.

He said KiwiSaver and the New Zealand Superannuation Fund were "probably not enough".

Another concern Fitch raised was that the housing sector may bounce back and lead to even more borrowing.

Mr McCormack said the agency would continue monitoring what happened in New Zealand.

The Fitch report impacted on the New Zealand dollar, sending it down from US64.63c to US63.90c yesterday but this morning it had recovered to US64.86c.

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