CTU media release

The Government should still be considering further stimulation of the economy to head off rising unemployment (forecast to hit 8 percent in 2010) despite the Fitch revision of its outlook for New Zealand’s credit rating, said CTU Economist and Policy Director Bill Rosenberg.

“Fitch cites the large current account deficit, rising foreign indebtedness, the reliance on short-term foreign funding by banks, and low household savings along with the volatility of the New Zealand dollar,” said Rosenberg. “But very little of those overseas liabilities are public debt. Fitch’s calls for further cuts in public spending are therefore unjustified and should be resisted.”

“We remind Fitch that almost 90 percent of the current account deficit is due to net investment income flowing out of New Zealand, which cost the country $13.4 billion in the year to March. The great bulk of this is interest and dividends on private liabilities, and is not due to government debt, which is still at a low level. Two-thirds of the international debt is due to banks borrowing overseas.”

Even at its forecast peak, net government debt will be a very small proportion of New Zealand’s international liabilities, and small compared to other OECD countries.

Dividends and other income from foreign investment in New Zealand companies cost $7.9 billion in the March year. “New Zealanders should not be hit by this legacy of large scale privatisation in the 1990s and lack of effective screening of overseas investment,” said Rosenberg.

“Neither should public services and the need for the Government to take further action against unemployment be undermined by the big four banks racking up high levels of short term overseas debt.”