US Downgrade a Wake-Up Call for NZ Govt, Says Brash
Monday 8 August 2011, 4:50PM
By ACT New Zealand
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The only thing surprising about the US credit downgrade is that markets seem to be surprised by it, says ACT New Zealand leader Don Brash.
New Zealand stocks have tumbled to an 11-month low today in the wake of the weekend downgrade of America's credit rating by Standard & Poor's to AA+.
The agency also pronounced America's outlook "negative," meaning further downgrades are possible.
"Investors have perhaps assumed that America is invincible, that a credit downgrade is something that just does not happen to the United States," Dr Brash observes.
"But the weekend's events are a salutary reminder that no country, not even the world's only superpower, can run up a debt as big as its GDP without suffering the consequences.
"The credit downgrade is a chickens' homecoming which, unfortunately, may well trigger a second recession," says Dr Brash, a former Governor of the Reserve Bank.
"This will sorely test the soundness of our own government's policies.
"It's all very well for Prime Minister Key to say New Zealand is well-placed to weather international storms. His optimism is not shared by the New Zealand Institute for Economic Research, which just this morning was warning that New Zealand could eventually face a Greece-type meltdown if it didn't start tackling the ballooning costs of superannuation and healthcare for an aging population now.
"This government is borrowing $300 million a week. It refuses to cut its own spending significantly. It won't even consider raising the age of eligibility for NZ Super, as ACT proposes. It projects utterly implausible economic growth rates and claims it'll balance the books on the back of them. It lacks the imagination to slash Company Tax, as ACT would, to make New Zealand not just investor-friendly but investor-irresistible - which would make those growth projections achievable," Dr Brash concludes.