Key tells FT NZ can't afford fresh fiscal stimulus; doesn't want to provoke S&P downgrade

Key tells FT NZ can't afford fresh fiscal stimulus; doesn't want to provoke S&P downgrade
John KeyPrime Minister John Key has finally said out loud what many have known within government for weeks. (Corrected after FT correction of negative savings rate) The government has decided against any fresh fiscal stimulus in the May 28 budget because it cannot afford to provoke ratings agency Standard & Poor's into downgrading New Zealand's AA+ sovereign credit rating, Key told the Financial Times in an interview over the weekend New Zealand "cannot afford" to provide fresh fiscal spending for its embattled economy and was instead planning to cut government expenditure, the Financial Times reported Key as saying in this article, which is only available to subscribers. "We don't want to challenge the ratings agencies by being overtly provocative," Key told the Financial Times in the interview. "We don't want to do anything that would precipitate a downgrade." Key said he was betting that a falling Kiwi dollar would naturally allow the current account deficit (now at 8.9% of GDP) to correct itself during the next one to two years. High levels of indebtedness were a thornier problem, the FT said. New Zealand households were estimated to be saving dis-saving as much as 15% of their income per annum, the lowest saving rate of any OECD country except Greece, it said. Key's government had announced tax cuts and accelerated infrastructure spending that the OECD estimated would provide a fiscal expansion of about 5 per cent of GDP in the next two years, the FT reported. Key said his government was also cutting expenditure and would increase spending in its new budget at a lower level than the previous government. "We can't continue to diet on debt because, if we do, in the long run we'll challenge the health of our economy," Key said. Key seems to be developing a habit of being much more fiscally direct in interviews with international financial newspapers than he is to local media. His comments in the Wall St Journal last month about New Zealand not going down the "spend and print" path of other governments was widely welcomed in global financial markets and was cited as a reason for a successful issue by ANZ National of US$1billion worth of bonds.

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