Finance Minister Grant Robertson was suitably chuffed by international credit ratings agency Moody’s Investors Services’ reaffirming its Aaa rating on the NZ government’s financial position. He banged out a press statement to say this is another sign that the Labour-led coalition’s decision to run surpluses and pay down debt is the right way to go.
Robertson brandishes the Moody’s reaffirmation of NZ’s sovereign credit rating to rebuff critics who insist the government should jettison the budget responsibility rules and borrow more to overcome the country’s structural infrastructure and social deficits.
Moody’s says the government’s fiscal management has created the space needed for investment in areas like infrastructure, affordable housing, education and policies to support families.
“This is exactly what we planned for at Budget 2018 – while continuing to live within our means by running sustainable surpluses. Moody’s says they expect NZ’s growth to be stronger in the next few years than other Aaa-rated countries. They also say our debt reduction track will see government debt fall significantly lower than other Aaa countries.
“As Moody’s notes, this is important because NZ is more susceptible to the classic rainy day – natural disasters and changes in the international economy – than some of our peers.That’s exactly why we are staying within the Budget Responsibility Rules.”
Robertson points out that those rules include running sustainable surpluses, getting net debt down to 20% of GDP within five years, and making sure government expenses remain under control and in line with what governments over the past 20 years managed.
The Finance Minister couldn’t resist throwing in another line or two to show how successful his economic management is proving:
“The update from Moody’s comes on the heels of this week’s GDP figures showing the NZ economy had its best performance in two years over the latest quarter. The economy grew by 1% in the three months to June 30, with broad-based, inclusive growth across industries and regions. It’s not just the one quarter that looks good – real GDP growth over the first half of 2018 was in line with the Treasury’s Budget forecast, and business investment is up 5.7% from a year ago”.
National’s finance spokesperson Amy Adams has a rather different idea of what Moody’s was telling the world about NZ’s credit rating.
She reckons Moody’s report praises the strength of an economy built up under nine years of a National government.
“In Moody’s own words: it notes how NZ’s fiscal metrics ‘improved swiftly in the aftermath of the 2008 recession and the 2011 Canterbury earthquake; they continued to improve through the downturn in commodity prices from 2014-2016 and the Kaikoura earthquake in late 2016.’ That NZ survived both economic and natural challenges and was still able to emerge stronger is testament to National’s stable hand in government.
“Moody’s also praised National’s debt reduction, pointing out ‘the central government’s gross debt fell to 26.5% of GDP in 2017 from a recent peak at 31.3% in 2012.’ Economists have already cut their forecasts for government surpluses in coming years because of the likelihood the Government will need more revenue than it expects to fund its wasteful and largely unquantified spending plans”.
Adams believes the strong economic foundations built up by National are now at risk of being torn down, undoing all the good work Moody’s has praised. The government’s employment policy will undermine the strength of NZ s labour force and make it less flexible at a time when great change is being demanded of employers in a global market.
She says it has already dampened enthusiasm for NZ as an export destination. Moreover the government decided to impose a fuel tax just as global crude prices were rising, hitting Kiwis at the petrol pump. And its ban on oil and gas exploration ensures NZ will be a net importer of fossil fuels products, with all the cost that implies, for the foreseeable future.
“It is far easier to spend wealth than create it. National wants all NZers to have the opportunity to accumulate wealth. Low-quality spending such as we’ve seen from this government with its working groups, slush funds and massive but unsuccessful student bribe shows how quickly gains can be eroded.”
Much as New Zealanders might be cheered (or downcast) by these contrasting views of the Moody’s report, there is little sign yet of any political solution to what most economists as the burning question facing the country: how do we increase productivity and raise incomes to the levels enjoyed by, say, Australians or Scandinavians?