By Bernard Hickey
Labour Finance Spokesman David Cunliffe has argued the Double-Downgrade of New Zealand's sovereign credit rating on Friday was a response to the National government's failure to manage New Zealand's foreign debt and its current account deficit.
Speaking in a Double Shot interview with Bernard Hickey on Friday afternoon, Cunliffe rejected the government's argument that the ratings agencies had shifted the goalposts on foreign debt.
"This is chickens coming home to roost. This was the government's primary objective in Budget 2009 onwards to avoid, that it would add 1-2% to interest rates and NZ$600 million to debt servicing costs. The worst has happened," Cunliffe said.
"It has happened because of a range of factors, including a lack of confidence in the government's response to the net international debt, largely private debt, and the growing current account deficit," he said.
Cunliffe rejected the accusation that National had inherited a structural budget deficit and high current account deficit from the Labour government in 2008.
He advocated a capital gains tax to "kick the tax incentive out of the property market to get capital going where it does the most good. Secondly we need a strong savings policy," he said.
Cunliffe said the government needed spending restraint rather than spending cuts.
He agreed in hindsight that the Labour government should have moved quicker to slow down the housing market and reform the finance company sector.
"We weren't perfect. Fair's fair. We've learnt some stuff, but that doesn't absolve the current government from the responsibility to knock over the savings policy issue, the capital gains tax that they've shied away from, and knuckle down and address the export gap, because people are getting sick to death of spin and photo opportunities."
Cunliffe rejected suggestions of a slash and burn approach to spending.
He said the government had made NZ$22 billion of income tax cuts while running up NZ$37 billion of debt.
"They've been relying on something that's been tried and failed over decades which is trickle-down economics," he said, adding some of those tax cuts had been used to buy luxury imports rather than invest in productive activity, worsening the current account deficit.
Cunliffe said Labour would get public debt to zero faster than National, "although there'll be a slight timing change under plan," pointing to stronger Capital Gains Tax revenues in later years.