Fitch cuts NZ's sovereign credit rating by one notch to AA from AA+, cites NZ's high net foreign debt and widening current account deficit

Fitch cuts NZ's sovereign credit rating by one notch to AA from AA+, cites NZ's high net foreign debt and widening current account deficit

By Bernard Hickey and Alex Tarrant

Fitch Ratings has cut New Zealand's sovereign credit rating to AA from AA+, saying it saw New Zealand's net foreign debt as higher than others with AA credit ratings and that New Zealand's structural imbalances were continuing to widen.

"New Zealand's high level of net external debt is an outlier among rated peers - a key vulnerability that is likely to persist as the current account deficit is projected to widen again, reflecting a structural savings/investment imbalance," said Andrew Colquhoun, Fitch's Head of Asia-Pacific Sovereigns.

The New Zealand dollar dropped from 77.8 USc shortly before the news was announced at 5.30 am NZ time to 76.5 USc by 7.30 am.

Finance Minister Bill English, who had been in the US last week talking to ratings agencies, said although New Zealand's external debt had fallen a bit, markets had become much more sensitive to counties with high levels of external debt. One ratings agency executive had told him they had been caught out by not giving enough weight to Italy's external debt, and now every sovereign was under the microscope. 

“They’re going through a cycle. There has been quite a number of countries downgraded. I wouldn’t say we knew it was coming, but we’ve always known what the issues are," English said.

"That’s why we’ve been working pretty hard for the last couple of years on getting the government’s debt under control, because that’s an important part of this, but also trying to pull some of the indirect levers to influence our household debt," he said.

Westpac chief economist Dominick Stephens said the move would likely raise the cost of government borrowing, and could also raise costs for corporates, including banks. A possible rise in bank funding costs due to the current global economic turmoil was flagged by Reserve Bank Governor Alan Bollard earlier in September, although Bollard noted the banks did not currently need to raise funds on global wholesale money markets, and it would be more of a '2012 story'.

The downgrade comes after the government yesterday raised NZ$1 billion of debt at near record low costs, as investors looked to diversify away from volatile European markets. See more here.

Stephens said the downgrade and warning from Fitch meant the Reserve Bank was certainly in "wait and see" mode with the Official Cash Rate, which economists generally expect to raised in either March or June next year.

ANZ economists said the Fitch move would increase speculation Standard & Poor's, which has New Zealand on negative outlook, might downgrade the government's credit rating as well. However, the upward revision to the government's earthquake costs might stay S&Ps hand until it sees the pre-election fiscal update, due toward the end of October, they said.

Christian Hawkesby, head of fixed income at Harbour Asset Management, said the 'real news' in today's announcement was it increased the likihood of an S&P downgrade.

"By focusing on net external debt, S&P follows a similar methodology to Fitch. But even then, this still leaves NZ in the major league, more closely linked to core countries like the US, UK and German than European periphery countries or emerging markets," Hawkesby said.

"Moody’s, who focus more narrowly on government debt, have reaffirmed the NZ government’s AAA rating. So while these are volatile times, we are expecting global investors to be able to put this news in context and continue to support the NZ government bond market,” he said.

ASB chief economist said subsequent to the Fitch move, Moody's had reaffirmed its stable outlook for New Zealand's Aaa rating.

Fitch more aggressive

Fitch is seen as the third ranked of the three global credit rating agencies, behind Standard and Poor's and Moody's, although it has been more aggressive and prescient with its downgrades of indebted European governments in the last three years.

Standard and Poor's currently has New Zealand on AA+, but put that on negative outlook in November last year, suggesting a one in three chance of a downgrade within two years. Moody's has New Zealand on a AAA rating with a stable outlook. Fitch's rating downgrade is the first New Zealand sovereign ratings downgrade for 13 years.

The last sovereign ratings cut was in September 1998 when Moody's cut New Zealand's rating from Aa1 to Aa2. Since then ratings agencies have been upgrading New Zealand's outlook. See the history of New Zealand's sovereign credit ratings here at NZDMO.

Fitch's Colquohoun said the outlook for the new AA rating was stable and New Zealand remained well placed among the world's highly-rated sovereign credits, with moderate public indebtedness, fiscal prudence, and strong public institutions.

New Zealand's net external debt of 83% of GDP on a USD basis (78% in NZD terms) by end-2010 was well above the 10% median for 'AA' range credits, but had reached 70% of GDP in NZD terms by June 2011, Fitch said.

"The economy's high net external indebtedness reflects a persistent current account deficit, peaking at 8.9% of GDP in 2008. The deficit corrected sharply amid recession in 2009-2010, but Fitch projects it will widen again to 4.9% in 2012 and 5.5% in 2013 as domestic demand recovers," it said.

High household debt

Fitch said it viewed New Zealand's high net external indebtedness as a key vulnerability, particularly in a global environment that had remained volatile since the ratings were assigned a Negative Outlook in 2009.

"The downgrade partly reflects Fitch's view that the sustained shift in the domestic savings/investment ratio required to narrow the deficit sustainably is unlikely within the forecast period."

New Zealand remained in the club of advanced economies with high household indebtedness - around 150% of household disposable income, similar to levels in Australia (157%) and the UK (159%), and above the US (116%), Fitch said.

"Unlike the UK and US, New Zealand has seen no meaningful reduction in this ratio since 2008. Fitch acknowledges that the government has implemented policies designed to facilitate a shift in savings, including raising KiwiSaver contribution rates, but the agency cautions that changing deep-seated behaviour is likely to be difficult," it said.

"While a sustained strengthening in household savings could address New Zealand's external indebtedness, such a development - even if it emerged - could make for a period of weaker growth, unless accompanied by renewed structural reforms. Historical experience shows that private consumption growth in New Zealand has been well-correlated with house price moves."

Fitch said New Zealand's five-year-average real GDP growth rate of 0.7% compared unfavourably with median average growth rates of 1.1% and 1.4% for 'AA' and 'AAA' range countries.

"Adding to risks over the medium-term outlook, official data indicates that the productivity performance of New Zealand's economy weakened over the 2000s. Average incomes remain moderate by 'AA' standards and even further below the 'AAA' median," it said.

Public finances deteriorated in last three years

"Public finances have traditionally been a rating strength for New Zealand relative to 'AA' rated peers but the deterioration experienced over the past three years has eroded that strength. The debt/GDP ratio of 46% in 2011, although below the 'AAA' median of 57%, is similar to the 'AA' median of 43% and the ratio of debt-to-revenues has risen in line with the 'AA' rating median to 122%. "

Fitch also pointed out foreigners held more than half of New Zealand's marketable government debt.

"The sovereign's own funding conditions may not be isolated from any materialisation of risks in external finances, although Fitch stresses that the risk of such a downside scenario remains remote despite the downgrade," it said.

"A sharper than expected rebalancing of New Zealand's economy leading to a reduction in the current account deficit and sustained falls in net external indebtedness nearer the norms for highly-rated sovereigns would benefit the ratings. New Zealand's ratings remain supported by fiscal prudence, with the government hoping to return to budget surplus in FY2014/15. However, upwards revisions to damage estimates from the Christchurch earthquake and consequent additional fiscal costs, or fiscal slippage driven by other causes, could set back this timetable."

Fitch downgraded New Zealand's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'AA' from 'AA+', and Long-Term Local-Currency IDR to 'AA+' from 'AAA'. The Outlook on both ratings is Stable. The Country Ceiling has been affirmed at 'AAA', and the Short-Term Foreign-Currency IDR at 'F1+'.

Political reaction

'It's happening all over the world'

Finance Minister Bill English said the downgrade was part of "what's going on in a world that's pretty volatile, where much worse things than that are happening".

“We’ve made considerable progress over the last couple of years. This agency, [which] had us on what’s called negative watch two years ago, are focussed on our high external debt. Now since then our external debt has reduced a bit, but the financial markets – the people who lend to us – have become much more sensitive to the amount of debt any country has," English said on Newstalk ZB.

"In our case it’s largely private sector debt held by households. Households are saving more, they are getting their debt down, they’re getting into a better position than they were when we had the last financial crisis in 2008. But in a sense the goal posts have shifted, because they [the markets] are more sensitive, even though our levels of debt are lower than they were two years ago," he said.

English met with Fitch executives on his trip to the US last week, although the ratings agency was tight-lipped on their views on New Zealand as they were considering New Zealand’s position.

“But they did focus on their concerns in Europe, which were on those countries that owed a lot of debt to foreigners, some of the countries that we’ve talked about here in New Zealand, where New Zealand is at similar levels,” English said.

“They’re going through a cycle. There has been quite a number of countries downgraded. I wouldn’t say we knew it was coming, but we’ve always known what the issues are. That’s why we’ve been working pretty hard for the last couple of years on getting the government’s debt under control, because that’s an important part of this, but also trying to pull some of the indirect levers to influence our household debt," he said.

Moody’s and Standard & Poor’s would be considering the same issues, going through a cycle of assessing their ratings.

“The mood in Washington at this meeting was very much that every sovereign was under the microscope," English said.

“They’ve got particularly negative about debt. They’re all trying to grapple with a very large economy like Italy which has high external debt. As one of them said to me, ‘we got caught out on Italy, not giving enough weight to their high external debt,'" he said.

'It's National's fault'

Labour Party leader Phil Goff said the downgrade was evidence of the National-led government's economic mismanagement and the failure of National's policy to borrow for tax cuts.

"National has failed to make the hard decisions needed to fix the imbalances in the economy. The downgrade is a clear judgement on National's failure to get the economy growing and to deal with New Zealand's long-term problems,” Goff said in a media statement.

"It's simply not good enough for John Key and Bill English to talk about just "muddling through". That kind of statement exposes their short-term thinking and lack of ambition when it comes to getting our economy going," he said.

"The downgrade shows why Labour's plan to introduce a capital gains tax to redirect investment into the productive economy and to pay back debt without selling our assets is so important. We also need to make bold decisions when it comes to lifting our national savings," he said.

Phil Goff has previously waved off questions about the fact Labour's policies would require the government to take on more debt in the short-term, saying ratings agencies were more concerned about a nation's debt track further out. See: Labour's Goff unfazed about need to borrow more than National in short-term, says ratings agencies would look at better long-term debt track.

'It's why we need ACT'

ACT leader, and former Reserve Bank governor, Don Brash said the downgrade was avoidable. The government had not done enough to grow domestic incomes and increase exports, he said.

“Low growth in incomes means low growth in savings, and the weak growth in export volumes reflects the big growth in Government spending,” Brash said.

“The Government has dropped the ball here. The fiscal deficit has increased from NZ$4 billion in the year to June 2009, to NZ$6 billion in the year to June 2010, and to NZ$18 billion in the year to June 2011. Only about one third of the NZ$18 billion is related to the Christchurch earthquakes,” he said.

“This is precisely the reason I decided to get back into politics. The current Government acknowledges the issues and is generally moving in the right direction, and often under trying circumstances, but they need a strong ACT Party in Government with them to help make more effective policy decisions that will avoid these kind of seriously negative economic outcomes.”

'Don't sell the SOEs'

Green Party co-leader Russel Norman said the move by Fitch was a thumbs-down to National, for failing to address the structural savings and investment imbalances within the economy. The primary reason for the downgrade was a worsening outlook for New Zealand's current account deficit due largely to high levels of foreign ownership in the New Zealand economy, he said.

“As the economy slowly recovers, increasing flows of money are going offshore in the form of dividends and profits to overseas owners of New Zealand companies and farms,” Norman said.

“Privatising our state-owned enterprises, which will inevitably lead to significant overseas ownership of them, will worsen the current account deficit as even greater levels of profits will flow offshore to their new owners. High levels of foreign ownership create a fundamental vulnerability in our economy to capital drain. We can solve this by retaining ownership of our state-owned enterprises and through higher foreign ownership tests, including an outright ban on the sale of land to non-citizen, non-resident owners," he said.

“On the fiscal side of the ledger, National must accept responsibility for their poorly-timed and poorly designed tax cuts — cuts which fuelled record levels of Government borrowing and failed to effectively stimulate an economy in recession," Norman said.

“The Government’s failure to consider revenue-raising options in the form of an earthquake levy to help pay for the rebuilding of Christchurch or the introduction of a capital gains tax (excluding the family home) to address the tax incentive to speculate in property, is now being shown up as short-sighted and will result in the cost of borrowing for all of us going up as a result of the downgrade.”

Economist reaction


Westpac chief economist Dominick Stephens said the downgrade should raise the government's cost of borrowing, while it could also widen corporate and bank funding costs. However he said it was difficult to know what "new" information Fitch had based its decion on.

"There has been speculation that the trigger was the recent weaker than expected GDP print for the June quarter, combined with increased cost estimates for the Christchurch earthquake," Stephens said.

"While Fitch's news release didn't point to this specifically, it did note that while New Zealand's ratings remain supported by "fiscal prudence", and public finances were typically a point of strength for New Zealand relative to its peers, upward revisions to the damage estimates from the Christchurch earthquake and consequent fiscal costs, or fiscal slippage driven by other causes, could set back the Government's current forecast of returning to budget surplus by 2014/15," he said.

"Fitch focused on risks generated by New Zealand's relative high level of external debt, noting that while New Zealand's current account deficit had corrected sharply amid the recession in 2009/10 as consumer demand fell, Fitch expects it to widen again in the coming years as consumer demand recovers (on their forecasts the current account deficit is expected to grow to 4.9% in 2012 and 5.5% in 2013). This high net external indebtedness, in part due to low household savings, was viewed as the key vulnerability, particularly in the volatile global environment. "

This had long been a theme of Fitch's. In its 2009 report which downgraded NZ's credit outlook to negative, it warned that net debt would be likely to rise above 100% by 2011.

"However New Zealand's net international investment position has improved substantially in recent years and is now at 70% of GDP, down from a revised peak of 85% (although reinsurance funds from offshore have provided something of a temporary boost). Fitch is presumably sceptical about the extent of structural improvement in this outlook noting that "changing deep-seated behaviour is likely to be difficult" (in relation to domestic savings behaviour)," Stephens said.

The market reacted to the news with the NZD falling 80pips against the Australian dollar

"Theoretically a lower credit rating will increase the cost of funds for the New Zealand economy and the New Zealand government. Typically you would expect to see higher government bond rates, further widening of corporate funding spreads, a lower NZD, and lower short term swap rates potentially combined with higher long-term swap rates leading to a steeper yield curve.," Stephens said.

"Even apart from today's downgrade, we've flagged the possibility of rising borrowing costs independent of changes in the OCR, as a result of heightened global financial market volatility. That possibility reinforces our view that the RBNZ remains firmly in wait and see mode for now," he said.


Meanwhile ANZ economists said the move was not entirely unexpected, as the possibility of a downgrade had been widely talked about.

"In terms of how we got here, it is worth reiterating that Fitch has had NZ on negative outlook since July 2009, so in a sense this removes that “threat” that had been hanging over the market (noting that the outlook is now stable). But what we are really talking about here are degrees of excellence – recall that Uncle Sam has also just been downgraded too," ANZ economists said.

"It will of course increase speculation in markets that Standard & Poor’s (S&P) might follow suit – recall that they too have New Zealand on negative outlook. Picking the timing of this is pure speculation, but we would expect them to either follow suit quickly, or wait for the Pre-Election and Fiscal Update (PREFU), which by law, must be published between 20 and 30 days before the general election (on November 26th)," they said.

"Given the circa NZ$4bn upward revision to the EQC’s earthquake liabilities, some deterioration of the Crown’s position is on the cards, and in that sense, it would make sense for S&P to wait for the PREFU before announcing a downgrade, if they are intent on doing so," they said.


ASB chief economist Nick Tuffley said the move raised the chance of a downgrade from S&P.

"Historically the immediate reaction to past downgrades has been modest.  Much of the market movement around a ratings downgrade tends to be in response to the underlying economic environment, rather than the ratings change itself," Tuffley said.

"We expect that will largely be the case following the Fitch downgrade: the European debt crisis and consequent concerns about the global economy will continue to dominate the trends in the NZD and interest rates," he said.

"Even at AA from one agency, NZ appears more stable than many other countries receiving downgrades.  Nevertheless, the global backdrop is one of nervousness, and it is still possible another rating agency also cuts NZ’s rating."

(Updated with details from Fitch statement, NZ dollar fall, background, Comment from Bill English, Westpac comment, Goff comment, ANZ comment, Habour asset management comment, ACT, Greens, ASB)

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Right, lets see what the JonKey has to say about this. Doubtless more wittering about 'we'll be alright, China will save us'.....

Another shot across our bows.

haha I thought Jonkey said it would never happen (rate cut) .. shows how clueless he really is.  After the US went down one notch, I'm sure it was agreed that all other western economies would also have to be adjusted.  Australia next?

Besides, rating agencies are purely politically motivated (corupt *cough*) and clearly incapable of doing a good job (just look at every other financial failure they failed to predict).  So really any rating is completely meaningless.

Here's some old cuttings from HuffPo just after the AIG / Lehman collapse:

Moody's, Standard & Poor's, and Fitch Ratings all maintained at least A ratings on AIG and Lehman Brothers up until mid-September of last year. Lehman Brothers declared bankruptcy Sept. 15; the federal government provided AIG with its first of four multibillion-dollar bailouts the next day.

..Fitch said the analysts in charge of ratings for the now-disgraced firms are still employed.

"You had rated AIG and Lehman Brothers as AAA, AA minutes before they were collapsing. After they did fail, did you take any action against those analysts who had rated them?" Speier asked. "Did you fire them? Did you suspend them? Did you take any actions against those who had put that kind of a remarkable grade on products that were junk?"

I wait with baited breath to see what Wolly has to say:-P

He's still barrowing his gold along with tjhe back issues of Market Oracle out to the long drop................scarfie should be back soon! 

What sort of bait do you use?

Does the hook hurt your tongue?

Just a tag n release there W.A.S. always best to play it tongue in cheek : > )

Crikey, the rating agencies have finally got religion, or is it balls? I'm not sure which.

Good on them for telling it like it is.

Hasn't John Key been saying this would never happen, talking up NZ? Mean while we've been front loading all the debt we possibly can (breaking records in the process) because they knew this would happen and knew getting more credit from now on is going to be a challenge.

".. private consumption growth in New Zealand has been well-correlated with house price moves.." Sure has! And that's come to an end. For those who don't see it, this downgrade is a clear illustration of what is to come. S&P won't be far behind...The days of borrow-and-spend, for anything  -especially property, are...over...until such time as we have lowerd our household expenditure levels from 150% of income to well below 90% . We cannot go on spending $1.50 for each dollar we collectively earn just to boost the price of property to 'make us all rich'!

10 out 10 for the "S&P won't be far behind" comment.

You have to wonder about the timing, what if this had been before the last NZDMO offering?

Yeh, well its about time. My regional council increased my bore charges on my vineyard by 700% .When i went to talk to the council but the bosses are on a month trip to China paid by us of course, then I see they have just budgeted 800k for public relation staff to make them look good.  Lets start cutting, how did this happen before the election?

Lets start cutting

Bloated salaries, head count, corruption, incompetence, or all of the above?

Andrewj writes - "the council but the bosses are on a month trip to China"

For what possible reason have Local Government people gone to China?  So the perks of working for the Council now includes free overseas holidays!  I must update my CV.

Which council? Name and shame man!

Hawkes Bay, I was wrong about the holiday only 2 weeks. New building which was only finished 4 years ago is already full, at the time it was built it was going to be enough for the foreseeable future, looks like they meant they actualy could see it.

Best start cutting rates now then.

Gee what a surprise, they finally noticed how massively in debt we are, are are doing nothing but adding to it, did English think he could keep borrowing $300-400 million and no one would notice it?

He's got to be dreaming with this comment hasn't he? "We've got our government debt under control "

That doesn't seem to relate in any way to the record borrowing these guys have throughout their whole term, with nothing at all to show for it.

... with nothing at all to show for it. 

Not quite, they all got more money in their back pocket e.g.;

John Key, on $390,000 a year, would get (got) about $291 more a week.

I agree...Govt is saying we have debt under control - but we are still borrowing like no tomorrow...and then Goff comes out saying it's National's fault, and he is the guy that ridicules an criticism against WFF, interest free student loans etc...the Labour election bribes need to be removed...

Breaking News...! Angela Merkel Cements A Position With The IMF ...saying "To hell mit the Germans ,they won't re-elect me anyway."

In a statement to the media  she is reported to have said "I don't think  the German people understand the gravity of the situation..."

When a reporter inquired as to whether the people had been informed of the gravity of the situation she replied

"Oh Dear me no ,it's much too complex and grave...and then of course there's the French"


I have no link to support that statement. 

I'm beginning to warm to Angela. I think she understands the political landscape rather well. On the one hand you have the EU bureaucracy, which is really French Imperial Bureaucratic Socialism in disguise (the belief that the best and brightest should run the country/world through state bureaucracy) and on the other hand you have what's best for the German people and what the German people think is best for themselves.

I get the feeling that Angela is a better politician than she appears. Her U turn on nuclear was really rather brilliant. Once it became clear the German people really did not want it and it was a losing propostion she dropped it. That is unusually democratic. The usual response of people in power is that they know best and the people are wrong.

your seeing it Roger..! good o matey.

Each nation is different, the French seem to worship bureaucrats, the Germans seem to trust them, we think they are overpaid. Bureaucrats do have a place and the good ones are deserving, but how do you know which are the plonkers and which are the genuine good sorts?

By a more robust opposition and open debate on policy by those qualified in the media to delve deeper into issues without getting the brief of Questions you can or cannot ask  .

The plonkers tend to surface under cross examination of detail...I site the BBc interview with John Key.....................

he hasn't got any more clever...just more savy ...that does not make for substance.

it's aint too hard......the plonkers are found within scurrying distance of the beehive!

There's a structual problem with our continuing current account deficit that the Government seem unwilling to address. The main reason it's down from a hideous 8%+ of GDP is the lower interest rates we are now paying to our foreign owners. The core problem - spending other peoples money for your consmption - has been tossed into the too hard basket. It's not that hard really:

Incentivise savings, research and development, business investment and work.

Disencentivise borrowing for consumtion and speculation & tax luxury imports and capital gains.

The current outfit have such a lead in the polls that they could (politically) afford to introduce some unpopular measures but -  after ignoring their own think tanks, what have the come up with? Flogging off our priceless power stations. Real dumb. 

I am also frustrated with the pace of reform, but to be fair to National I think they do largely get it. They actually have the external debt problem up front and centre in their thinking. The media do them no favours on that though as it is not sexy.

Politically National have chosen gradualism, reform at a pace New Zealanders can cope with, rather than significant change that gets the problem solved faster but provokes a backlash that causes the reforms to be undone by the next adminitration.

It seems to be working for them, much to my surprise. I would have preferred they acted more  decisively.

You cant change things too fast....the shock would be worse than the problem...and actually Labour seem to be saying the same thing.....2 peas in a pod.

How much shock would the housing market take before collapsing in fright? bear in mind you just dont know the tipping point that would trigger such an event and I bet if a Govn got it wrong and trashed our economy you would be out there screaming at them and not saying "oh no that was an understood risk nevermind"


Yes, it seems they did have time on their side. I expected things to fall apart faster.

No, what National is doing is using the debt problem (misrepresented as a largely public debt problem) as an excuse to impose a failed neo-liberal ideology on us.

"Real dumb." about sums it up......

"afford to introduce some unpopular measures" the Govn has a mandate to do certain things in the next 3 years  ppl have voted on that and not un-expected or un-popualr things you like.....doing such something elses is on sure way to spend several elections in the wilderness....and they would deserve it.


What? Things like your first $5k bank interest tax free or taxing a Ferrari at double the rate of a litre of milk or properly enforcing our ridiculous "intention" based capital gains? Or lifelong beneficiaries getting more than the working poor. Years in the political wilderness, I don't think so.

Change is always feared but on balance changes along these lines would be generally (eventually?) welcome. The people need to be told - look we have a problem and this is what we intend to do. With the lead National have they can afford to be a bit more radical - your choice come election time. 

About time. NZ has been basking in Australia's halo as they've weathered the crisis... until their property bubble etc has started to burst.

No more halo. NZ is a shambles...

Few updates in there from economists, Harbour Asset mangmnt and Goff

ANZ economist;

But what we are really talking about here are degrees of excellence.

Yeah, right.

Excellence, Incompetence more like it.

"But what we are really talking about here are degrees of ugly.. "

There, fixed it for you Kate

Is that the same "excellent" ANZ economist that forecast 0.7% growth for the June quarter?

I suppose we are at 150% of disposable household income/debt compared to The States who 'only' at 116%, we must be doing an excellent job, our number being bigger than theirs :)

Interesting about Phil Goff's comment.  Under labour proposals, govt will borowing even more!  In fact, it's partly Labour fault, they should make more wise investments in their 9 years instead of spending all our savings in social re-engineering!

Labour's problems were two-fold :

Firstly : That the outgoing finance monster Sir M. Cullen was in such a rush to get to his new job at NZ Post , that he forgot to tell his replacement how he ( Sir Michael ) had so cleverly created all those surpluses , and how ran the NZ economy so successfully , with an iron hand .

Secondly : The incoming shadow-finance master David Cunliffe doesn't need to be told anything . He already knows all that he needs to know . .. . It is for us peasants to learn from his magnifience .

I think you meant..... it's for us peasants to learn from his malfeasance GBH...! 

Don't worry, the credit rating agencies won't look at that ;)

Have updated with a link to Goff waving that short-term fact away in August.

Where's the Top Ten at Four then Big B.,,,,?crack along there ...!

Yeah , come along Mr Chicken-Little Hickey , get with the programme ....

...  the Hickey-chickys are awaiting their daily dose of gloomsterisationalysing .

My  Hickeystamine levels have dropped...I need my dose of  Gloomcosamean....come on bin chillin wid the Good Doctor....

Bear with me Gummy and Christov.

I'm slaving away on. The news keeps getting in the way. And its the best type of news too....

Hang in there.

You never know. One day I might give you Top 10 reasons to be cheerful...



Ta...Bernard....I've such a lovely story for the Friday funny...shame  to waste it...beaver on my good man.

This downgrade is based on our ever-mushrooming national debt. 

This debt is an inevitable consequence of our bizarre taxation system, which allows full tax deductibility for assets borrowed against, but no tax on the assets themselves (no land tax), nor on the income gained from the sale of the assets (no CGT).

Such a system which rewards debt must distort the economy and lead eventually to crippling national debt & downgrades.

Cheers to all

That's pretty radical. What GST rate are you proposing? Somewhere between 75% and 125% should generate sufficient revenue for the Government.

Mist:  I think you are just throwing in a spoiler rather than addressing the issue.

The basis of our tax system is that it is theoretically progressive.

The system you are promoting would be clearly regressive, since the rich have more opportunity to avoid consumption tax than the poor.

It would also create a colossal black market, as people sought to avoid the horrific rate your consumption tax would need to be.


1.  Land is a producing asset for anyone who works it.

2.  If production is wealth then all tax must at some level penalise producers of wealth.  That's the nature of what tax is.  It takes something from someone who created it and gives it to somebody else.

Tax is a payment for things the community needs/infrastructure that business needs and such like.  If we didn't pay our taxes how would we be able to sleep at night knowing we will not be murdered in our sleep because the SAS is in Afganistan protecting us?

Tax is payment for goods and services, albeit compulsory payment and we might not want all the services (or more likely would rather free load).


The only surprising thing about this is that we (and the media) are going to act all surprised. No doubt we will get into the usual party-political bickering over who is to blame.

The reality for a small nation is we can be earthquaked to the poor house, combined with a government in deficit owing to poor spending and investment decisions of the last 15-20 years.

Whenever something like this happened - other political parties have never been able to add or suggest anything constructive other than rubbishy "told you so' kind of comments.  My guess is that they don't even have a clue..  Goff needs a real job!

Don't worry guys, we are being setup for an IMF bailout. The creditors are looking at all our great SOEs and looking forward to getting them real cheap in a fire sale.

ev erybody be calm. uncle phil will fix this when he is for everyone,kiwisaver for everyone,no tax and then he will stop us cutting our dogs tail off. hooray for phil.

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