Govt faces having to eat words after downgrades

Finance Minister Bill English (right) and Prime Minister John Key. Photo / Mark Mitchell

The Government is expected to face pressure in Parliament from the Opposition this week over its unflinching optimism despite being blind-sided by Standard & Poor's and Fitch downgrades last Friday.

But two political polls released last night have National's already commanding lead over Labour widening or stable. National increased by 3.5 per cent to 57.4 per cent in the TV3-Reid Research poll, with Labour down 2.2 to 26.6 per cent. And in the One News-Colmar Brunton poll, National was steady on 56 per cent, with Labour down 1 to 29 per cent.

The polls were taken before the double downgrade last week, but the One News poll still records a big movement in attitudes to the economic outlook, optimism being down four points and pessimism up four points.

Parliament sits this week for the last time and rises on Thursday, ahead of the November 26 election.

National's opponents are compiling files of comments that Prime Minister John Key and Finance Minister Bill English may wish they hadn't said. Most of last week, after Mr English returned from meetings of the IMF and World Bank in Washington, both he and Mr Key bragged about the relative strength of the New Zealand economy amid concern about a possible second global recession.

Labour yesterday condemned National's response, with economic development spokesman David Parker saying there was no credible plan. New Zealand's structural economic problems needed a long-term plan when the current trend was clear, he said.

"For decades we have spent more than we have earned as a country. We need to address this. Our country needs to save more, invest more in the export sector and export more." The current system could not deliver such change, he said.

The three levers only a government could pull to help the export sector were changes to the tax system, including a capital gains tax to direct investment towards the productive sector and a research and development tax credit; changes to monetary policy to help exporters and improved savings to increase capital available to grow businesses. Labour had a plan for each of them, said Mr Carter.

Mr English said yesterday that world markets were sensitive to debt "so any small country with debt is under the microscope, and we have among the highest levels of external debt in the world".

The ratings agencies acknowledged that an adjustment was underway in the economy, and household debt was coming down.

"The ratings agencies don't contest that but they are concerned that New Zealand will revert back to its bad old habits of the past 10 years.

"We're much more optimistic about that."

THE GOVERNMENT

* "A credit downgrade of that sort would mean lenders would no longer see us as a good credit risk, they would be reluctant to lend us money and when they did they would charge us ever-higher interest rates." - John Key, just before the 2009 Budget.
* "We should be pleased that Standard & Poor's are not obsessing about us." - Bill English, just before the 2010 Budget.
* "Phil Goff might not like it, but Standard & Poor's does." - John Key, just after the 2011 Budget.

STANDARD & POOR'S

* "The lowering of the foreign [from AA+ to AA] and local currency [from AAA to AA+] long-term ratings follows our assessment of the likelihood that New Zealand's external position will deteriorate further at a time when the country's fiscal settings have been weakened by earthquake-related spending pressures and fiscal stimulus to support growth."

- Last week