New Zealand’s standard of living going backwards amid rising debt - report

By Nona Pelletier of RNZ

New Zealand’s standard of living is going backwards according to global ratings agency S&P as the country continues to live beyond its means, while increasing debt.

S&P director of government ratings Martin Foo said New Zealand’s sovereign AA+ foreign currency debt rating was stable and among the highest in the world, but there were a number of risks it needed to address.

He said central government debt was not a constraint on the rating but local government debt and the current account deficit were risks, along with a weak economy.

S&P considered New Zealand’s local government debt to be among the highest in the world at 180% of gross operating revenue on average, and forecast to rise further to a cap of 350% of gross operating revenue to pay for critical infrastructure such as water, roads and earthquake strengthening.

He said some of the most indebted councils included Tauranga, Queenstown and Hamilton, with a few other councils carrying debt at 200% or nearly 300% of debt to revenue.

“So council debt is high and it’s rising,” Foo said, adding the debt would take generations to repay.

“We’ve seen some councils in recent months ... propose some of the largest deficits that we’ve seen in a very long time, in any part of the world, actually.”

He said the country’s current account deficit was also among the highest in the developed world at 6.8% of GDP, behind only Greece and Cyprus.

“So New Zealand is running a very large current account deficit by international comparison ... In layman’s terms, New Zealand is living beyond its means and it’s having to borrow a lot from external, offshore investors.”

He said the weak economy also posed a risk.

“GDP per capita has been basically tracking backward for the last four or five quarters, and that means living standards for the average Kiwi are going backwards.”

He said central government had signalled an intention to cut back on debt but its first budget missed the mark and saw debt levels increase instead.

“It is our best case that both those metrics do improve over the next couple of years. But if, for whatever reason, there’s some backsliding on the current account deficit or on the growth trajectory, then maybe we will look at a negative outlook.”