Key on backfoot over credit downgrades

Prime Minister John Key was on the defensive in the House this afternoon following last week’s double credit downgrade.

Mr Key said the downgrades would not mean any long term increase in interest rates and also that the downgrade had nothing to do with his firm position not to deal with long term population pressures by gradually raising the state funded pension age from its present level of 65.

Under attack from Labour MPs – who were showing more exuberance than they have all year – Mr Key said both Standard and Poors and Fitch had stressed private sector debt, not government debt.

He also blamed offshore turmoil and a greater risk aversion among investors and ratings agencies.

“With the greatest respect I am not responsible for what happens in the United States and Europe,” he said in response to questions form Labour leader Phil Goff.

“Nor technically was I in government when there was an enormous build-up of private sector debt…. New Zealand’s net external debt rose from 64% of GDP in 2001 to 83% in 2008 because of huge current account deficits.”

Act deputy leader John Boscowan then raised the issue of the age of state-funded pension.

“If the prime minister is not responsible for what happens in the United States and Europe, does he accept responsibility for public policy settings in New Zealand, and if so how does he reconcile the Standard and Poors statement that one of the reasons for the downgrade was ‘emerging fiscal pressures associated with an aging population’ with his statement.....that ‘all of our forecasts, all of our models, build in retirement at 65’

Mr Key reiterated that the downgrades were mostly due to global financial turbulence and New Zealand’s high private sector debt levels.

“The government comfortable with it at 65, its modelled out to 2025 and that is as far as we need to go,” he said.

Rob Hosking
Tue, 04 Oct 2011

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Key on backfoot over credit downgrades