By Alex Tarrant
It will be a “huge challenge” for government to meet criteria laid down by ratings agency Standard & Poor’s for a credit rating upgrade, which calls for sustained current account surpluses, Finance Minster Bill English says.
The government again came under fire from ACT, and Opposition parties during the last Question Time in Parliament before the November 26 election for the double credit rating downgrade dished out by Fitch and Standard & Poor’s on Friday last week.
The government’s sovereign rating was cut to AA from AA+ by the two ratings agencies, which highlighted New Zealand’s high external debt and persistent current account deficits as their major concern.
The government regarded Treasury’s forecasts showing New Zealand’s current account deficit would widen from 2.4% of GDP in the year to March 2010 to 6.9% of GDP in the year to March 2015 as a challenge, English said. Policies would focus on mitigating this, and the forecast rise in New Zealand’s net international debt position.
ACT Parliamentary leader John Boscawen asked English in Question Time what the government would be doing to try and reverse Friday’s downgrade, to which English responded the government would work on improving the economy’s competitiveness to export more and lift incomes.
The government would try to get its books under control, with a track back to surplus in two or three years to start repaying debt, English said.
“In terms of the rating agencies, the threshold that at least one of them has set [is] a sustained positive current account balance. Now that is a huge challenge for a country that hasn’t achieved that in the last 30 or 40 years, but we are up to that challenge,” English said.
Labour’s opposition finance spokesman David Cunliffe then asked English whether the government planned to keep increasing the current account deficit, and New Zealand’s net international investment position as forecast in the 2011 budget for the next four years?
“The government plans to continue progress on both of those figures...we’ve made significant progress on the net international investment position – it’s improved,” English replied.
“There are some forecasts that say it will deteriorate. We just regard that as a challenge, to turn that around,” he said.
“On the current account deficit, thankfully it is half of what we inherited when we became the government, just as interest rates are much lower than when we became the government, and we want to continue with that progress,” English said.
26 Comments
How could they do it? A few suggestions:
- A CGT to discourage speculation (using borrowed overseas $$) in assets, and transfer investment to productive enterprise
- A higher petrol tax, to encourage conservation of fuel and reduce oil imports
- A graduated Rego, to encourage use of smaller vehicles - so cheaper imports and less fuel required
- Compulsory KiwiSaver, to build an investment fund for growing businesses
- Raising the age of superannuation, to decrease the taxation drag on the economy and increase numbers in the workforce.
Other suggestions welcome
Are Bill & John likely to do any of the above? Not in your nelly!
Cheers
"get your hands out of my wallet!"
That seems to be the over-riding theme with political commentary in NZ. Protecting one's own interests over all else, including the welfare of the economy. This site, unfortunately, is rife with it.
Leave my WFF alone! Leave my interest-free student loan alone! Leave my tax-free capital gains alone! Leave my right to drive my SUV cheaply alone! Leave my right to retire at 65 alone!
Cheers
Philly, tax is an interesting concept .. does it really work? Lets take a closer look.
We can create a tax to discourage a certain behaviour can't we?;
- We want to discourage "consumption", so lets tax it. GST is applied to everything we buy.. including food. Obviously we want to discourage people from eating food.
- We want to discourage excessive drinking, so lets tax alcohol. Apparently drinks with higher alcohol content are more harmful than drinks with lower alcohol content. Therefore an alcohol "levy" is applied by either its ethanol content within a range or by beverage volume. According to stats NZ, beer drinking is down while spirits drinking is up.
But perhaps you could help me out by answering a couple of questions;
Did countries that have a CGT avoid the property bubble??
Are there any other ways besides tax that could also solve these problems?
Are we actually solving the root cause of the problem or treating its symptoms?
What happens to the additional money the Govt collects? Are governments an efficient allocator of money?
Matt S: You are responding to an argument that I don't think anyone has seriously made: That CGTs will prevent property bubbles. I have certainly never made that claim. I think property bubbles are best tamped down by other means. Those decrying a CGT frequently turn to that supposed argument & then proceed to shoot it down, but that is not really the reason for a CGT.
I was focusing on "rebalancing the economy" by encouraging investment in productive resources instead of property. Bubbles themselves are best prevented by more targeted methods.
& regarding the "additional money". There isn't necessarily additional money. You could use the extra revenue to reduce tax on other things. It can be neutral. However, if you were running a deficit at present perhaps you could use the $$ to reduce that shortfall. It wouldn't be stupid, would it?
Cheers.
You are putting words up, or maybe a straw man and shooting down with equal il-logic....
CGT, it serves two purposes,
a) The minor one it helps cool a bubble, its not a fix for it.
b) Most important it taxes profit that isnt otherwise taxed, so it levels the playing field, especially amongst the very rich who make all their money via capital gains....
"other ways" the main reason for tax is to fund Govn expenditure, that the voter has decided will be expended and not solve "problems" or act as a rudder for policy wants, that is a secondary purpose.
regards
In the neo-classical economics models debt == credit so since it balances it is ignored....this is a disasterious assumption to take as is being proven.
So as long as us the voter via the Govn doesnt pick up the bills for business and private failures Im fine with Govn stayiong out.
The problem is,
a) When the business and private spending is damaging NZ's economy....which with the housing gamble has and is.
b) We just got a credit downgrade due to the high private debt that effects of credit rating....so I through my taxes is paying for others gambling.....hence yes it is my business, private debt is costing me money, hence I have a right to interviene
regards
Iain - hear hear mate, great to hear someone speaking some sense on this website.
Of course many people think that the all NZ's problems can be solved by adding another tax, but evidence around the world has clearly shown that this does not work. Some people need to do their research, look at the UK/USA, they both had CGT's and had massive property bubbles.
A max LTV ratio works, this has been employed in South Korea with great effect, their savings rate is high and a very wealthy nation.
So I propose maximum LTV's to discourage speculation.
"problems solved by adding another tax" not sure where you get this from....but in a sense, yes...we have expenditure that is being financed by debt and some paying no tax and even claiming WFF....so that can be partically fixed by a CGT.
A CGT isnt about controlling the housing bubble....it is about taxing un-taxed income and cooling a bubble somewhat....that effect was simply over-welmed by too cheap and easy credit...and yes I think a 80% lvr is the way to go...but texas that had it still had excess prices.
regards
Well, you can suit yourself & have a good rant against being taxed on your untaxed income. & vote for the Nats or Act.
But I can also suit myself & vote for a party that is in favour of a CGT. At present that means Labour or the Greens. I see plenty of downsides with both of them - but then again, I do with the Nats too. I think quite a lot of people are of the same thinking as me.
Allowing whole income classes to claim their costs against their income, but not be taxed on the gains, is clearly inequitable & unsustainable, considering the ageing population etc.
Cheers.
Quite right parky..what's needed is a mortgage tax that has to be paid by the user and the seller...annually. It could be jacked up or dropped according to the wishes of the fool in the Beehive. Zero in election years with promises to keep it that low...hahahahaaaahha
PS Philly - the welfare of the economy is not my concern, and neither should it be - I'm not some kind of "welfare of the economy support charity". I'm a sovereign individual trying to ensure that my (rapidly eroding) property rights are protected from the depradations of successive governments and socialists who have no idea of where and how wealth and economic wellbeing is actually created in the first place (hint - not in the corridors of government).
Over the years I have dutifully paid vast amounts of tax and been one of those that has not been eleigible for any of the lower or middle class welfare programmes so back off.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.