The 2009 budget was another piece of well managed political theatre by National. Reneging on their irresponsible election bribe tax cuts, and knowing that they wouldn’t have anything much positive to sell, they set up the threat of a credit downgrade as the litmus test of success.
Before the budget Key confidently predicted that the political humiliation of a downgrade would be avoided. Eddie started us off with a few choice quotes yesterday, here’s another from Key:
“If a downgrade were to happen, it would add 1-2% of interest on the amount the government borrows, which is around $600 million each year.
This, says Key, is to be avoided at all costs. “That’s every homeowner, every business, everybody paying 2% more. That would be irresponsible in my view for the government not to act,” Key says. [emphasis added]
To make sure of the outcome, Bill English consulted with the ratings agencies (to the extent that even Tory commentators raised the alarm about Who’s writing the budget?). Sure enough post budget the agencies duly held their ratings, and the government got to enjoy the mission accomplished spin. They were still posturing (in well scripted uniformity) about avoiding a downgrade in debate on the 10th of August 2011:
STUART NASH (Labour) to the Minister of Finance: In what way is New Zealand “better placed to withstand” a financial crisis than 3 years ago given that before he came in to office the Government was running a surplus and core Crown net debt was just 1 percent of GDP and now the Government is running record deficits and net debt is 20 percent of GDP? …
Hon BILL ENGLISH: I think it [the government’s credit rating] is on negative outlook, and that is remarkably better than the downgrade we would have faced if we had not changed the damaging and wasteful policies of the previous Labour Government. …
TIM MACINDOE (National—Hamilton West) : … Have those members not noticed what is happening in Europe, America, and elsewhere at the present time? Do the phrases “debt crisis” and “credit downgrade” mean nothing to them? …
AMY ADAMS (National—Selwyn) : … Of course, more recently we have watched the old superpower America teeter on the brink of complete collapse, and we have seen its economy not only downgraded recently, but also put on further negative watch. That tells us how important it is that we can present to the world the face of a strong economy that has its books in order, its debts under control, and, most important, is being led by a Government that knows how to run a strong economy and knows how important it is to keep the accounts in good order and keep us in good shape. We have seen over the three Budgets delivered by the John Key – led Government a story of returning this country to the strong position it deserves to be in, putting us on the front foot and putting us in a position where we are economically competitive internationally and where the world and the lending markets know we are a good bet. …
DAVID BENNETT (National—Hamilton East) : … What the Labour plan would deliver is more debt. Is more debt a good thing to have at this time? Labour should ask the Americans what more debt means. More debt means we get downgraded. When we get downgraded, what does that mean? That means we are going to be in a situation where we have higher interest rates for our people. The people in New Zealand do not want higher interest rates. …
Hon JUDITH COLLINS (Minister of Police) :… Well, we have seen this week in the United States what happens when a nation’s credit rating goes down. We have seen what happens. What happens is that interest rates go up—interest rates for the job creators, interest rates for mum and dad investors, interest rates for homeowners, interest rates for people with mortgages, and interest rates that translate through to everybody’s pocket. … There is not a word from the Opposition about how this Budget prevented a downgrade of our credit rating, which would have affected every New Zealander in some way. …
JAMI-LEE ROSS (National—Botany) : … They think that more debt will solve all those issues. Well, it will not. It will put us in a situation where we would have a credit rating downgrade if we continued along the debt projection that the last Labour Government left us with. It would be a shambles. … High debt levels would lead to a credit rating downgrade, and that would lead us back to the area of high interest rates for New Zealand homeowners. …
Fast forward to September and the Nats have suffered not one, but two separate credit downgrades. I wonder how they’re going to explain away their boastful posturing and dire warnings now. With a smile and a wave perhaps?
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