A second agency downgrades NZ

September 30th, 2011 at 2:40 pm by David Farrar

Stuff reports:

Credit rating agency Standard & Poor’s has cut New Zealand’s rating from AA plus to AA, after a similar downgrade by rival agency Fitch this morning.

S&P has had New Zealand on negative outlook since late last year.

It said it downgraded the rating because of the likelihood that New Zealand’s external debt would get worse when the government is having to spend more as a result of the Canterbury quake.

This is a blow. It means all businesses and of course the Government will have to pay a bit more to borrow money. This is the price we pay for having kept interest free student loans – everyone else pays more interest.

This makes it even more imperative that the NZ Govt gets back into surplus as fast as possible. I hope both major parties do not use the election period to make spending promises we can’t afford, or in Labour’s case tax cuts for all we can’t afford.

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90 Responses to “A second agency downgrades NZ”

  1. Nostradamus (2,938 comments) says:

    That last sentence. Labour and tax cuts? How do you come to that conclusion about the party of tax increases?

    [DPF: Labour's policy is to exempt the first $5,000 of income from tax for every NZer. This will increase deficit and debt]

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  2. Rick Rowling (800 comments) says:

    As always, it’s interest paid for by other people student loans.

    Any election promise with the word “free” in it is misleading.

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  3. robcarr (132 comments) says:

    You should try reading the report or perhaps just the article. It explicitly states the issue is not public debt but private debt and the downgrade is a result of levels of private debt. if student loans had interest the amount owed would be larger and thus we would be more likely to have a rating downgrade.

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  4. Manolo (13,313 comments) says:

    This is an indictment on English’s very poor performance.
    Double Dipton English should resign and disappear, so Joyce can become Minister of Finance.

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  5. plebe (271 comments) says:

    I say we are doomed, the idiots from the past(national/english) are repeating the past again,our poor countries doomed

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  6. Nick R (497 comments) says:

    Oh yes, Labour’s tax cuts for all are a disaster. OTOH, the Government can borrow as much as it likes for tax cuts, right?
    As for student loans – well, the Govt has had 3 years to do something about that. Far too late to blame Labour now.

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  7. MyNameIsJack (2,415 comments) says:

    And did Blinglish have a meeting with this company too, but forgot to ask whatm they may be thinking?

    Sack the uselss POS – Bring back Cullen!

    But no, Jone Key will smile and wave, the band will play on and the deckchairs on the Titanic will be swapped.

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  8. Kimble (4,374 comments) says:

    Robcarr, did you read the part that DPF quoted?

    It said it downgraded the rating because of the likelihood that New Zealand’s external debt would get worse when the government is having to spend more as a result of the Canterbury quake.

    NZs debt will get worse as the government borrows more.

    And if student loans did have interest, the amount being borrowed would be less. durrr

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  9. Kimble (4,374 comments) says:

    MNIJ, you mean bring back the arrogant cunt who increased government spending simply to avoid handing National a budget surplus? And then gloated about it? And ended up putting us in such a bad economic position once the world economy turned, that all of his sensible work in previous years was pissed away?

    Yeah, lets bring back that asshole.

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  10. m@tt (587 comments) says:

    It’s private debt that is the problem David, as you well know.
    Even if public debt was a problem singling out student loan interest when National gave tax cut’s just makes it look like you have no idea what you are talking about to anyone except those who’s visceral loathing of labour outweighs sane decision making.

    [DPF: National's tax cuts were fiscally neutral as spending/subsidies were cut to match them.]

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  11. david@tokyo (262 comments) says:

    This isn’t a NZ downgrade in isolation. Lots of countries are getting downgraded these days, not the least of which is the USA.

    The agencies have been wrong 4eva and are trying to regain some credibility by adjusting their previously over-optimistic ratings.

    NZ still looks relatively good compared with the mess going on in Europe and the US have just kicked their own can down the road.

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  12. Kimble (4,374 comments) says:

    m@tt, if private debt is the problem, then policies which help reduce private debt are better than those that do the opposite. Right?

    Interest free student loans increase private debt.

    Tax cuts can be used to reduce private debt.

    How could you say something so incredibly stupid?

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  13. Manolo (13,313 comments) says:

    Don’t even dare to mention the name of the loathsome socialist Cullen, the minister who squandered NZ riches during the boom years, and who left nothing behind.

    And to add insult to injury, his Labour lite mates rewarded him with plum jobs (NZ Post and Kiwi Rail directorships). No better example of the politicians’ mafia at work.

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  14. Aredhel777 (278 comments) says:

    Yeah, it’s always the fault of the interest-free student loans! Tell you what mate, I think it’s tough enough already that people come out of university $50000 in debt without paying interest on it too. I’m a student and I deeply appreciate interest-free student loans, even if you’re so rich that you don’t give a damn about people less fortunate who cannot afford education.

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  15. Batman (97 comments) says:

    @ Kimble at 3:08pm: LOL, ZING!! that asshole hahaha

    This is a blow though, and only strengthens the argument for:
    a) compulsory Kiwisaver (go on Bill, steal Goff’s thunder)
    b) nominal interest on Student Loans (as someone with a brand new $40k loan, I feel i have some authority on this)
    c) scrap Working for Families entirely for people on combined incomes of over $60K
    d) raise the retirement age to 68 or 70 over a period of a decade
    and possibly
    d) banning labour from the treasury benches for a period of 9 years, as punishment

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  16. Rick Rowling (800 comments) says:

    Aredhel777 – I’m glad that you deeply appreciate the rest of us paying your interest for you.

    Hopefully you will be community-minded enough to pay the principal back promptly, so we can stop carrying you.

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  17. Don the Kiwi (1,577 comments) says:

    That’s okay Aredhel 777.

    As long as you don’t fuck off overseas to a plum job when you’ve finished your degree and leave a $50k debt that never gets paid – that’s arguably a bigger problem than interest free.

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  18. ross (1,454 comments) says:

    Which MP made the following comment:

    “The No. 1 way to see New Zealanders down the road from their jobs is if their businesses cannot be funded. That is what happens when we have a credit downgrade…”

    And what blogger will be the first to make excuses for it?

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  19. adze (1,855 comments) says:

    Meanwhile Chris Trotter has had another fevered fantasy about Revolution. This time, in one of his now-notorious future histories, he predicts student unions will reform by another name and force the government to provide free university tuition plus a living allowance for all (yay! lollies!) – plus force a tripartite takeover of university governance…

    I think the polls are starting to have an effect on him. Either that or he’s trolling.

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  20. Pete George (22,731 comments) says:

    Batman -don’t like your chances with a-c.
    d)#1 won’t happen until after 2014 at the earliest.
    d)#2 is currently being taken care of by Mallard, Fenton et al

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  21. m@tt (587 comments) says:

    Kimble.
    The cost of that free interest is to the tax payer and tax cuts, despite the ‘claim of fiscal neutrality’ are on their own a reduction in government revenue. I’ll assume you were just too quick in reply rather than being incredibly stupid.

    [DPF: National's tax cuts were fiscally neutral as spending/subsidies were cut to match them.]
    David, that’s pure spin. First they were not fiscally neutral, even if that was the original intent and second they could have cut spending/subsidies and NOT cut tax which in turn would have meant less public borrowing required.

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  22. Manolo (13,313 comments) says:

    c) scrap Working for Families entirely for people on combined incomes of over $60K

    Are you taking about the same WFF that John Key once called “socialism by stealth”? Only to happily keep it ticking over the last three years (and the foreseeable future).

    The consumate liar.

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  23. Manolo (13,313 comments) says:

    DPF: National’s tax cuts were fiscally neutral as spending/subsidies were cut to match them.

    250,000rpm.

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  24. Mick Mac (1,091 comments) says:

    Manolo
    You got it in one on all your posts.

    Less tax is the best tax, that means cutting our cloth first, not after.
    WFF loses money because Govt is inefficient, rather leave it in peoples pockets.

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  25. V (668 comments) says:

    “This is a blow. It means all businesses and of course the Government will have to pay a bit more to borrow money.”
    Does it?
    They downgraded Japan years ago, and yet – their interest rates kept falling.

    Not saying that will happen here as the Yen is viewed as more of a safe haven, but will be interested to see how much creedance the market places in S&P, Moodys and Fitch these days.

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  26. Batman (97 comments) says:

    @ PG: hey, i’m an optimistic person. glass half-full and all that!

    Well if you think a-c isn’t going to happen, what would UF do? how do we climb out of this predicament we find ourselves in?

    Also, i forgot to add the suggestion that selling minority stakes in state assets will help us quite a bit in my opinion

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  27. Pete George (22,731 comments) says:

    It’s ok, all the important things are under control.

    John Key pledges to fight Coro switch

    Prime Minister John Key says he will try to stop Coronation St being moved to 5.30pm

    Is he trying to compete for some of the Winston vote?

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  28. Scott Chris (5,869 comments) says:

    If private sector debt is the problem, then re-weighting the tax system by lowering income and company tax, and increasing GST to 20%, as well as introducing a land tax to disincentivise real estate borrowing would see an improvement in private debt levels. A credit card transaction surcharge would also discourage their use.

    Making Kiwisaver even more attractive also beats compulsory Super in terms of freedom of choice, but not at the expense of employers.

    Raising interest rates would be counterproductive, as this would affect business competitiveness and investment, as well as further inflating the dollar.

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  29. berend (1,630 comments) says:

    Don’t be so hard on John DPF. He’s only borrowing $400 million a week to keep everyone happy, and so National can avoid having to make choices.

    He’ll sleep walk to the election.

    Don’t be bothered NZ is walking off the cliff. We can always borrow more.

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  30. tvb (4,193 comments) says:

    If debt is underpriced we end up in a situation like the feckless Greeks. So I see this as a good thing because our debt levels are very high.

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  31. jaba (2,089 comments) says:

    I heard the answer to these woes on the news at 4:30. Phil Goff said Labours Capital gains tax along with NOT selling assets allowing NZ to own our future will sort this problem out .. simple really.
    Will probably be repeated on the 6 O’clock news

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  32. wreck1080 (3,721 comments) says:

    And precisely why we need a land tax offset by a drop in personal income tax.

    Several years ago, I thought the NZD/GBP rate of 0.42 was unsustainably high – now , it has just fallen from 0.54 to 0.49 —- about time the exporters got a break.

    Lets put some heat on the debt laden borrowers for a change.

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  33. toad (3,668 comments) says:

    This is the price we pay for having kept interest free student loans…

    Bullshit, DPF! Interest free student loans are only a minior causative factor.

    Far more significant are NZ’s failure to implement a Capital Gains Tax, its failure to introduce an earthquake levy to pay for the Christchurch rebuild (both of which contribute substantially to the fiscal deficit), and its open slather approach to foreign investment (which contributes substantially to the current account deficit).

    These are all issues the Greens would address, but National has totally failed on. Bill English has adopted a “borrow and pray” response to both the global financial crisis and the Christchurch earthquakes. It isn’t working, because it doesn’t address the revenue side of the equation. And the more foreign investment is encouraged, the more profits are repatriated offshore widening the current account deficit.

    We’re not yet a basket-case like Greece, but Bill English’s economic policies are rapidly moving us in that direction.

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  34. gazzmaniac (2,317 comments) says:

    [DPF: National's tax cuts were fiscally neutral as spending/subsidies were cut to match them.]

    Like the increase in GST?

    BTW I quite like the idea of a tax free threshold – it should be the first $20k though, and 20% flat tax after that.

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  35. gazzmaniac (2,317 comments) says:

    toad – what is wrong with foreign investment? I thought that foreign investment was good, because it either retires foreign debt or it frees up local capital for something else.

    The National Party wouldn’t have to address the revenue side of the equation if they substantially reduced the spending side.

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  36. dog_eat_dog (742 comments) says:

    The proposals for a Capital Gains Tax on the table here are political ploys looking for an economic problem to solve. They’re square pegs, and we have a round hole. Don’t even get me started on why the proposed Labour CGT is literally the most-poorly though through populist policy since interest free student loans!

    Also, David, you have to stop getting in the mindset that students don’t also pay tax, or interest on things like other loans. It’s not a binary economy, and many here would gladly operate under your assumption of having an interest-free student loan and magically getting an interest reduction relative to everyone else for credit card debt, mortgages, etc.

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  37. toad (3,668 comments) says:

    @dog_eat_dog 5:35 pm

    …proposals for a Capital Gains Tax on the table here are political ploys looking for an economic problem to solve.

    There is a fucking huge economic problem to solve. It is that the current policy setting divert investment into property speculation, rather than production of goods and services that creates jobs. A Capital Gains Tax would level the playing field and encourage people to invest in productive enterprise rather than property.

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  38. UpandComer (506 comments) says:

    Matt how weren’t they fiscally neutral? i.e. they were, undoubtedly, but how weren’t they.

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  39. UpandComer (506 comments) says:

    Toad would the Greens make it a universal capital gains tax? what are your exemptions? Would you leave the other small print property changes that National enacted in the last budget?

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  40. toad (3,668 comments) says:

    @UpandComer 6:10 pm

    Sole exemption under Green policy would be the family home (that you can prove you actually live in for most of any given year).

    Unlike Labour, which has heaps of exemptions in their CGT policy that will provide a field day for tax lawyers and severely undermine the intent of the policy to encourage investment in enterprise over that in property. The Greens take a similar position in opposing Labour’s promise to remove GST from fruit and vegetables. Good in intent, but seriously complicates tax law and provides heaps of opportunities for avoidance/evasion. Good tax law is law that people can easily understand and find difficult to avoid imo.

    And, yes, what National did re tax on depreciation on property is something I understand the Greens support. Problem is that it only scratched the surface of the problem.

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  41. Manolo (13,313 comments) says:

    NZ needs a Green Party in power like a bullet in the head.

    No way the Luddites will ever get near the government of our country. It would send us back four or five decades.

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  42. Pete George (22,731 comments) says:

    toad, good to hear on tax policies, as simple as possible is best of any tax type. I think there’s still a good case that can be made for a straightforward CGT.

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  43. thedavincimode (6,519 comments) says:

    Why should there be any exemptions at all, aside from minor chattles (and that only for tax effciency reasons eg cost of collection and administration)?

    If I choose not to buy a home but instead invest in income producing assets and pay tax, why should I pay tax when someone else prefers to invest in their home for a tax-free gain? What about the people who can’t afford to buy a home?

    The entire rationale underlying capital gains taxes is broadening of the tax base as Toad suggests. It is not to increase tax revenue, but rather to ensure that people are taxed on all forms of gains. As soon as you provide exemptions, or use it as a revenue raising tool, as distinct from a tax base broadening tool, it just gets too hard. You have domestic equity issues and issues also with foreign investment as soon as you travel down these paths.

    Toad, your levelling of the playing field sounds attractive at first sight, but is fraught with difficulty with a realisation based tax because of the practical requirements to make arbitrary decisions about things like exemptions and tax rate.

    The only sensible and practical model is that proposed about ten years ago which basically taxed capital assets on an arbitrary rate of deemed return ( 5 or 6% from memory) and not on realisation values. That avoided the distortions caused by selling the family home after 30 years and getting taxed in one year on sale. It mean’t people could make informed decisions about investment options. In practice it meant that the people living in Mangere would pay less tax, because they would get a reduction in their income tax in excess of the tax cost on their home, whilst the punter on the big wicket living in Remmers would likely wind up paying more tax overall because although income tax might reduce, tax on the home would increase the household tax take. However if Remmers man preferred to live in Mangere and invest in income-producing assets, he would pay much less tax on his house. For those who are genuinely interested in understanding these issues, there used to be a document on line (the report of a committee) at the IRD. I think it was on some sort of tax policy site. I don’t know if its still there.

    I recall reading something to suggest that Gareth Morgan, philanthropist to his ego, has pinched this idea and is promoting it in a new book. I may be wrong because as a matter of principle I prefer to ignore him and in this case the phrase: “tax is traditionally a means of redistribution of wealth” leaped out at me. Aside from that “observation” being complete shit, it remimded me of one of the reasons that I think he is an idiot.

    One of the issues now with Liabore’s proposal, is that their starting point is a point in time when asset values are rooted. People would wind up being shafted because markets have crashed and that would mean taxing people on gains without recognising the unrealised losses to date. Another is the fact that even based upon Liabour’s dodgey numbers, we won’t see any tax out of this for yonks and we will have to borrow up large in the mean-time to pay for their promises. Liabore’s policy just another shameless rich pricks beat up. Ironically, it was Herr Dokter that commissioned the report that I’ve just referred to. If they were genuinely interested in addressing the issue, they would blow the dust of it. But then they aren’t. They’ve only raised this because they are fucked and their suggestion avoids the politcal hot potatoe of taxing people on their homes, even when they might be better off overall.

    BTW. land taxes are fucked. Take farmer – high value in land, vs manufacturer who might have high value in plant but low land value. It simply creates an incentive to get out of land-based production. But given that the melons seem to think that we can make money out of competing with China’s economies of scale in manufacturing green products, particularly when we don’t even have any compettitive advantage in the technology, that’s no doubt exactly what they want. This is yet another reason why the melons are so unbelievably fucking stupid and that they should stay at home making wooden teeth, macrame underpants and pottery that nobody wants to buy.

    Finally, don’t lose sight of the fact that on the day NZ got two credit downgrades, Liabore’s “structural” change will result in more borrowing for the next five years or so. Thanks Cunners.

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  44. Aredhel777 (278 comments) says:

    “Aredhel777 – I’m glad that you deeply appreciate the rest of us paying your interest for you.”

    It’s not like you’re giving us free money, you know. We’re paying every cent of our fees, eventually. The thing is that rightwing, wealthy nutjobs want us to pay for their tax relief, even though they’re in much more of a position to pay our nation’s bills than a bunch of dirt poor students.

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  45. Kimble (4,374 comments) says:

    The cost of that free interest is to the tax payer

    So it increases public debt and private debt.

    and tax cuts, despite the ‘claim of fiscal neutrality’ are on their own a reduction in government revenue.

    Which increases public debt, while also increasing after-tax income allowing taxpayers to reduce private debt.

    You said the problem was private debt.

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  46. thedavincimode (6,519 comments) says:

    Aredhel777

    “rightwing, wealthy nutjobs want us to pay for their tax relief”

    Sorry old thing. Doesn’t seem that you have the intellectual and reasoning capacity to do whatever it is you’re supposedly studying.

    Can I suggest you do us all a favour. Pack it in and get a paper round. The fresh air will do you the world of good too.

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  47. m@tt (587 comments) says:

    @UpandComer
    “Matt how weren’t they fiscally neutral? i.e. they were, undoubtedly, but how weren’t they.”

    How an can a tax cut be fiscally neutral, it’s cut! So they did some arbitrary other thing at the same time what the has that got to do with it?

    If I sell my car (raise GST) and buy a spa pool (cut tax) for the same price, my position is no worse off at face value (though I now have no transport and have to start busing), but if I had not bought the spa pool I’d actually be better off and if I had no need of a bloody spa pool (tax cut) in the first place that makes it straight stupidity. To then turn round and claim I am worse of only because I also bought a PS3 (Student loan interest) is plain ridiculous.

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  48. Kimble (4,374 comments) says:

    It’s not like you’re giving us free money, you know.

    Actually, it is exactly that.

    We’re paying every cent of our fees, eventually.

    But not the cost of the money. We are paying for that.

    The thing is that rightwing, wealthy nutjobs want us to pay for their tax relief

    Perhaps some thief one day might knock you down, take your wallet and steal all your money. Then when she drops a few of your own dollars back on the ground, you can reflect on the absurdity of anyone referring to that change as “poverty relief”.

    Even though they’re in much more of a position to pay our nation’s bills

    Which they have been doing for decades. Not that you seem to show any appreciation for them shouldering so much of the burden.

    …than a bunch of dirt poor students

    And you might have a point if anyone was saying poor students should be paying the Nations bills. But they arent. They are saying students should pay the students bills.

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  49. m@tt (587 comments) says:

    @Kimble. Thanks for the laughs but I’m not getting into a “who’s on first” routine with you.

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  50. Kimble (4,374 comments) says:

    How an can a tax cut be fiscally neutral, it’s cut! So they did some arbitrary other thing at the same time what the has that got to do with it?

    I get it now, you are only looking at one side of the governments records; revenue. You only consider any tax cut (or increase) fiscally neutral if another tax is increased (or decreased).

    Of course, you have no justification for ignoring the other side of the ledger.

    The cuts might be fiscally neutral when you consider the impact on the deficit. Not that I expect you to ever do that. Cognitive dissonance and all.

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  51. Kimble (4,374 comments) says:

    m@tt, you said the problem was private debt. I showed that the very next things you said were inconsistent with that assertion.

    I win.

    Fuck off.

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  52. Scott Chris (5,869 comments) says:

    davincimode “BTW. land taxes are fucked. Take farmer….”

    Any land tax would have to be proportionate to the potential net yield obtainable from the land. Land would be classified according to its state of development, terrain, distance from market etc to disincentivise inefficient land use.

    I’d exempt Native Bush from land tax, to encourage habitat regeneration but you’d have to fence it off to keep the fucking cattle out.

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  53. adze (1,855 comments) says:

    Lol @ wooden teeth and macrame underpants.

    Worth reposting Sir Paul Callaghan’s formula for catching Australia once again:

    http://vimeo.com/29126569

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  54. DairyMan (5 comments) says:

    “More imperative”? Superlative much?

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  55. Kimble (4,374 comments) says:

    Any land tax would have to be proportionate to the potential net yield obtainable from the land.

    Rather than the net yield actually obtained? Taxing people based on what you think they should be doing. This is the same arrogance you have displayed before. You think you know better than everyone else what they should be doing. In this case you want to tax them based on your whim.

    Potential net yield will require estimating. The ability of any government dept to do that efficiently and accurately is very questionable.

    Scott Chris, you are once again engaging in wishful thinking, rather than considering the real outcome of the policy absent some magical intervention.

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  56. Scott Chris (5,869 comments) says:

    Kimble

    Are you suggesting that our private debt level isn’t a problem?

    Are you also suggesting that private debt, and our diminishing ability to repay it is not a factor in the downgrade? What if unemployment suddenly jumps to 15% owing to, say, the China bubble bursting leading to another credit crunch?

    “Rather than the net yield actually obtained?”

    This would incentivise inefficient land use.

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  57. Falafulu Fisi (2,176 comments) says:

    DPF said…
    This is a blow.

    You knew the level of GOVT borrowing before DPF. Why is it a blow now and why are you surprised? For us supporters of ACT/Libertarians principles for small GOVT, have been saying this on a consistent basis on this blog about this danger, but to the Nats’ followers, it’s just business as usual.

    I’ll wait and see if that idiot National Party worshiper Shunda barunda turns up to defend John Key. Don Brash had already warned about this and idiots like Shunda barunda don’t seem to understand the gravity of the situation. Shunda barunda labeled Don Brash as an idiot. It turned out that Shunda barunda and his National Party worshipers are the real idiots.

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  58. Scott Chris (5,869 comments) says:

    “This is the same arrogance you have displayed before.”

    Heh. One sentence in and you’re already calling me names. I may well be arrogant, but that is beside the point. An idea can’t be arrogant, just flawed.

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  59. side show bob (3,660 comments) says:

    My one cent worth. It’s a fucking con. A few years ago the banks were handing out the cash like there were no tomorrows. Fuck the idiots offered me hundreds of thousands for a neighbors property that was on the market. I thought it was way over valued, history is now on my side. Sure people don’t have to borrow more then they can afford to repay but the banks sure weren’t saying no. Anyhow the shit has now hit the fan and the banks are crying crocodile tears because their business models are but worthless paper and of course they are to big to fail . Having sold millions of worthless debt ridden mortgages and such they now cry poverty. Oh and guess what, the rating agency’s ride into town with the big stick and say “you arseholes have been living to high on the hog and will now have to pay more, you are now surfs”. As far as I’m concerned it’s all just to convenient.

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  60. Scott Chris (5,869 comments) says:

    Kimble

    The problem I am trying to address is the current situation we find ourselves in, and the best way to go forward. Lower income tax, a higher consumption tax and a land tax is *just an idea* to reweight the current tax burden and to address the problem (as I see it) of excessive private borrowing.

    If you were to come up with a better idea to rebalance our present situation, I would immediately discard my current hypothesis.

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  61. adze (1,855 comments) says:

    FF, Shunda’s a green supporter I think.

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  62. Kimble (4,374 comments) says:

    Are you suggesting that our private debt level isn’t a problem?

    Nope.

    I am saying that arguing the problem is private debt and then immediately defending a program which increased private debt and attacking a program which reduced it is stupid.

    This would incentivise inefficient land use.

    With who as the arbiter of what is efficient?

    Why do all your policy ideas require omniscient administrators working towards a single optimal state for the universe, as determined by you?

    Your arrogance keeps you proposing policies that are completely unworkable and if ever implemented would have precisely the opposite effect you intended. Your arrogance also prevents you from ever comprehending how this could be so.

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  63. expat (4,048 comments) says:

    Er, DPF, WTF are you talking about re: Students loans????

    Does not compute. Student loans have little if any impact on the overall credit rating of NZ Inc.

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  64. Scott Chris (5,869 comments) says:

    “With who as the arbiter of what is efficient?”

    Difficult to say. I would suggest a formula based on steepness and fertility of terrain, distance from market, local climatic conditions, and the state of development of the farm. To incentivise improvement, the land tax status would be fixed regardless of development for, say, 30 years.

    “Your arrogance keeps you proposing policies”

    Fear of being called arrogant isn’t going to stop me from coming up with ideas. I know that 19 out of 20 of my ideas are useless based on past experience, but I am not afraid of being wrong. If that means I’m arrogant then so be it.

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  65. reid (15,904 comments) says:

    This is an indictment on English’s very poor performance.

    No it’s not. English hasn’t been exactly inspiring but the reason for the downgrade is globally all the agencies are sitting forward with antennae quivering.

    All of them are alert for signals and sometimes, like markets, they get it wrong.

    This IS what this is.

    Our fundamentals are sound, by comparison say to potential Euro liabilities accruing to France or Germany which both enjoy triple A ratings.

    I personally interpret this as an ambiguous warning signal. It could be the rating agencies know something we don’t. Alternatively the rating agencies are acting like hysterical schoolgirls.

    Either way it’s bad news, but I hope it’s the latter not the former.

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  66. toad (3,668 comments) says:

    Interesting that there is little response to my 6:37 pm comment (other than Pete George).

    Is that an admission of defeat by the righties?

    A distorted tax base that favours investment in non-productive property rather than in business that creates jobs is always going to be self-defeating.

    Righties don’t like subsidies, in principle. But when they get one through the tax system, they lap it up big-time.

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  67. Kimble (4,374 comments) says:

    Difficult to say. I would suggest a formula based on steepness and fertility of terrain, distance from market, local climatic conditions, and the state of development of the farm.

    So it isnt difficult to say afterall. The arbiter will be you. Big surprise.

    You say nothing about the most important thing that contributes to yield; the crop or the animals. You would assign a tax liability based on what you think should be grown on the property. Changing to a lower value crop, for example, would be punished under your system, even if the farmer is simply trying to diversify or thinks he foresees a future change in the market.

    Fear of being called arrogant isn’t going to stop me from coming up with ideas.

    Your arrogance keeps you proposing policies that are completely unworkable and if ever implemented would have precisely the opposite effect you intended.

    Thats the full quote.

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  68. Scott Chris (5,869 comments) says:

    toad – “Sole exemption under Green policy would be the family home”

    Okay. The problem with this as I see it, is that this policy would incentivise single parent ownership to avoid tax. If you are a couple, you only own half a home tax free.

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  69. Kimble (4,374 comments) says:

    Is that an admission of defeat by the righties?

    I for one usually skip your comments when I read down the page.

    Righties don’t like subsidies, in principle. But when they get one through the tax system, they lap it up big-time.

    So we are arguing against something that could enrich us. A fair person would think that this gives our argument more credence. A fair person would interpret that as us arguing against something for reasons other than personal gain.

    Lets try it on the other foot.

    Lefties love subsidies, in principle. When they get one they lap it up big-time.

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  70. Scott Chris (5,869 comments) says:

    Kimble

    Critique this idea if you will:

    In the free market, fearlessness is a good thing, provided the lessons learned from it are not forgotten, and the consequences taken into consideration in formulating future strategy.

    “The arbiter will be you”

    No. The arbiter would be an expert. I’m just some guy in a chatroom.

    I realize that you are arguing from a self regulating free market perspective. I don’t trust that in spite of its appeal. I would like to believe that the strong property rights proposed by the likes of Hayek would be a simple formula for the ideal business environment, but I see a maze of regulation arising from that idea as well.

    Anarchy is the only real free market, so unless you are an anarchist, you are an interventionist like the rest of us.

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  71. Other_Andy (2,261 comments) says:

    Excuse me.
    All those who want a CGT on property.

    You allready pay tax on the sale of property unless it is your home.

    From the IRD
    Buying and selling residential property
    What you need to know aboutyour tax obligations

    When deciding whether or not you should pay tax on the profit from the sale of a property, we look at your intention when you bought it.
    If you bought the property with the firm intention of selling it when prices rise—to make a gain from the increase in the property’s value—the profit is likely to be taxable. However, if you bought the property to provide a home for your family, any profit from the eventual resale will most likely not be taxable, unless you have a history of regularly buying and selling properties.

    Here we have it, 15% GST (On the original price and the capital gains you have made).
    Or do you want to complicate things?

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  72. Kimble (4,374 comments) says:

    The problems in the economy could be solved, if only we had the “right experts” in charge?

    An expert to decide how much farms should yield (and what should be grown). An expert to decide how much people should be paid. An expert to decide the relative value of everything. An expert to decide how the experts will all interact. And of course an expert to decide how the experts are chosen.

    Scientific control of the economy. What a wonderful idea.

    http://www.econlib.org/library/Essays/hykKnw1.html

    I am not arguing from a self-regulating market perspective. Its more fundamental than that. I am arguing from a market pricing perspective and a personal freedom perspective.

    They idea that some expert would be able to punish me for not utilising land that I own in his prescribed “optimal” way, is abhorrent.

    “But I dont want to farm chickens, I hate birds, I like growing avocados.”

    “Then you will have to pay more tax for your inefficient use of the land.”

    “What? I already am paying for it! I am not making as much money due to my preference!”

    “Well, the Ministry has decided. You will be taxed at this rate for the next 30 years, so you might as well start making plans to start behaving correctly.”

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  73. Griff (6,697 comments) says:

    The Horse has bolted why padlock the barn door.

    CGT on housing will fail to take any money for at least the next seven years. All the idiots that jumped on the property bubble have been well burnt. House prices are pretty much static allowing for inflation. The collapse has had the same effect as the share market crash of 87 instilling a fear in the market that will linger for a while. Rents should cover your mortgage plus $CLO plus rates and insurance. Until this happens there will have no significant capital gain on property so no tax take from CGT.

    National will have the mandate to actually unwind a few of the lefts fuckups. Yet I do not think they have the guts and they have to much lust for power. Unless act gets more than three or four sets national will stay on the center line.

    The government should wind back WFF and repay it as tax cuts the fiscal drag of the money going to the government only to be re paid is a good way to evaporate 10%. Flat tax at the same rate as company tax of about 20 % with no breaks for any one would Halt a lot of rorts and be easier to collect.

    compulsory super fund with an asset tested pension and compensation for us poor bastards who are paying for our parents yet know that it will be gone by the time we retire

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  74. chris (556 comments) says:

    @berend

    Don’t be so hard on John DPF. He’s only borrowing $400 million a week to keep everyone happy, and so National can avoid having to make choices.

    He’ll sleep walk to the election.

    Don’t be bothered NZ is walking off the cliff. We can always borrow more.

    Ah the same boring old repetitive posts from Berend. Don’t forget it’s 100 mill a week now and not 400 (did it ever even get to 400?). Not that it’s a lot better. Just get rid of WFF for the middle class and it would probably solve the issue.

    So who are you voting for Berend? Obviously not National. Surely not Labour who would borrow even more. Who’s left? ACT who will probably have just one or two MPs? Surely not the Greens? Maybe the Maori party would suit you?

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  75. berend (1,630 comments) says:

    toad: Is that an admission of defeat by the righties?

    Toad, if you stop talking about that we have a revenue side problem, we’re gonna take you more seriously.

    50% of our GDP is wasted by the government. You really think that should be 60%? And that will solve the problem??

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  76. berend (1,630 comments) says:

    Chris, National will increase the budget deficit for the next three years. You really think I’m going to vote for these clowns?

    Obviously I will be voting for the only party that has an interest in NZ’s sustainable future (and no, not the party that thinks sustainable means turning off the light).

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  77. chris (556 comments) says:

    Which party is that then? Personally, I don’t think any of them having an effing clue. I’ll be voting National as usual, but it’s more of the lesser of two/several evils type of thing.

    Personally, I find it scary that no one is prepared to look at the long terms costs of our current policies and realises that is completely and utterly unsustainable and that the hard decisions need to be made now.

    As far as I can see, the Nats are the only ones to be in a strong enough position to do something about this now, but they seem to be too scared to campaign on what needs to be done in case they don’t win. Labour would simply flush us down the toilet further.

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  78. Scott Chris (5,869 comments) says:

    “They idea that some expert would be able to punish me for not utilising land that I own in his prescribed “optimal” way, is abhorrent.”

    You are free to run the land as you see fit. Land tax would be far less of an imposition than the actual value of the land, which is aligned with your idea of market price dictating best use. Land value may well be a more objective way to classify ideal land use than the formula I suggested previously.

    If you are running sheep on land suitable for intensive market gardening then you may as well sell up and buy a sheep ranch upon which you can run 10 times as many sheep. A land tax is complementary to land price incentives.

    Land tax is problematic, as davincimode pointed out, in that it unfairly places a greater tax burden on farmers. Evaluating best use is primarily a measure to make the tax fairer to them, whilst at the same time, *avoiding* encouraging inefficient practice.

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  79. chris (556 comments) says:

    @berend

    toad: Is that an admission of defeat by the righties?

    Toad, if you stop talking about that we have a revenue side problem, we’re gonna take you more seriously.

    50% of our GDP is wasted by the government. You really think that should be 60%? And that will solve the problem??

    The problem with the lefties is they can never look at both sides of the balance sheet, and the wastage and churn that happens. I absolutely agree with you. We have loads of revenue. But we have far too much unnecessary expenditure on the other side that is absolutely not required.

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  80. Griff (6,697 comments) says:

    The greens blow a few billion on green technology nice dream huge waste of money.
    Pay the ferrals to breed how stupid can you get
    Sign the country’s assets over to a racist minority so we can all become ferrels just like them. Institute an apartheid constitution one white man one vote. one Maori two Votes one for parliament and one for a Maori upper house and watch us spiral down the OECD rankings. FFS The easy way to reduce your carbon footprint is to stop breathing until all the greens do this they are just Hypocrites.

    PS hope I don’t attract the wrath of DPF for that comment.

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  81. Joseph Carpenter (210 comments) says:

    On September 11th I wrote the following on this blog:
    “Total NZ Government borrowings from 1/12/2008 to 31/7/2011 = NZ$37,485,000,000.00 ($37.5 billion).
    Average interest rate on debt = 4.41%.
    Total commitment imposed by National Government on NZ citizens to date for debt repayment = $53 billion.

    National government debt per citizen = $12,300 (to 31/7/2011).
    National government debt per nett taxpayer = $38,100.
    Projected National government debt by 26/11/2011 per nett NZ taxpayer = $44,000 per.”

    For this I got 20 demerits and abused as a socialist and a Labour Party supporter (a particularly insulting low blow).

    The fact is these credit downgrades are warning shots across our bow: the good ship HMS NZ simply can’t continue on the same course, it must start turning significantly (n.b. Billy E to starboard not port). Because the next shot will damage our superstructure (with casualties) and after that it won’t be shots but volleys to sink us.

    I believe there is room after the election for a mini budget from National: certain commitments they made expire on 26/11/2011 plus they can explain:
    1) The ChCh earthquake reconstruction will cost significantly more than initially estimated (higher spending), plus will take longer and the business damage is greater than forecast (less revenue).

    2) The global (and local) economy has not recovered from the GFC and in fact we are very likely heading into GFC2 The Sequel (with bigger explosions and far more casualties of bit players) = less revenue. In particular Australia (no.1 trade & investment partner) and China (no.2 trade & no.3 investment) shows signs of weakening badly over the next few years, they’ve sheltered us in a big way from the GFC. In fact ALL our top 10 trades (Aust, PRC, Jap, EU, UK, USA) could be in the deep poo next term.

    3) Although commodity prices have been very high unfortunately our dollar has been very high and demand weak (less revenue). This has also had bad effects re our interest rates, importation/current account deficit and repayment of overseas debt.

    Don’t forget National’s Budget forecast 3.9% GDP growth for GFY2012 (and 16% total over 4 years to return NZ to surplus) but the actual will likely be 1.5%. Hopefully Mr Key has been playing a long game and will now have the mandate and will to start making real changes because they are going to become increasingly necessary.

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  82. Monique Watson (1,062 comments) says:

    Nice take on it Joseph Carpenter. Was spiraling down into the usual CGT Vs Dolies/Students rubbish in parts. Going there is a waste of time, that’s all been covered off this year.

    The ratings downgrade is the orange light. Not the red light. It was going to come at some stage because the dollar has been so high for so long. No surprise. I had a bet with a mate it would be August.

    It means: free up some room to take the next speed humps – they are on the way.

    The two most obvious areas of savings are Superannuation (obviously the major parties are waiting till Winston falls by the wayside; any policy discussion now by the two major parties results in votes in his pocket. You can bet that will be first on the agenda next year no matter who forms the government. The policy will be being written already in both main camps.

    The next is health – reformation overdue; the private sector should be able to take the public overflow.

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  83. Kimble (4,374 comments) says:

    For this I got 20 demerits and abused as a socialist and a Labour Party supporter (a particularly insulting low blow).

    That seemed odd. So I looked into it.

    Joseph Carpenter posted the exact same thing in three different threads.

    This is how DPF responded.

    [DPF: off topic and now spamming. 20 demerits]

    Entirely fair.

    Now this n00b is on this thread trying to make it seem as if his dissent is being crushed.

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  84. toad (3,668 comments) says:

    @chris 9:35 pm

    The problem with the lefties is they can never look at both sides of the balance sheet, and the wastage and churn that happens.

    Like the $100 million that is wasted every year policing the stupid cannabis prohibition law. That is one thing I do agree with Don Brash on.

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  85. Scott Chris (5,869 comments) says:

    toad

    You issued a challenge, to which you received a number of replies. You only answered chris’ reply. I repeat:

    toad – “Sole exemption under Green policy would be the family home”

    Okay. The problem with this as I see it, is that this policy would incentivise single parent ownership to avoid tax. If you are a couple, you only own half a home tax free.

    Care to address this issue toad?

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  86. ross (1,454 comments) says:

    “The No. 1 way to see New Zealanders down the road from their jobs is if their businesses cannot be funded. That is what happens when we have a credit downgrade…”

    That was John Key in 2009. So where are those 170,000 new jobs coming from, since businesses will be laying off staff? Key lies through his teeth and gets a free pass.

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  87. UpandComer (506 comments) says:

    @ Toad: That sounds good. It’s good that you guys don’t have all the special interest exemptions that make labour’s policy a dogs breakfast. Are you guys also going to provide an exemption for the sale of shares and other assets under Kiwisaver and the other big funds? Also am glad you would keep those changes. They seemed minor but just talking to people have had a big effect, and actually annoyed a lot of property minded folks.

    @ Scott Chris: single parent ownership of a home seems a pretty minor consideration? The sum total of tax on the home sale will be the same for the government?
    @ Ross: the NZ economy actually provides roughly 40000 jobs per year, and has for the last few years. 170000 jobs over 3 years is a conservative estimate given the better tax systems in place from the last budget.

    @ berend: Borrowing is well down from $400m/week. It was that high because the govt was taking advantage of short-term low interest rates so they could borrow less in the medium/long term.

    I imagine Bill English is pretty pissed off for the credit downgrade. It seems premature. It might actually serve as a self-fulfilling perception.

    @ matt: Thanks for replying.

    - I understand the point of view that dislikes tax cuts. However, if you cut or re-weight taxes and cut spending equivalently, the product is fiscally neutral – that’s the definition of fiscal neutrality…

    - It’s untrue that the government has been borrowing to pay for tax cuts, it’s clear in the treasury accounts – the tax package was paid for.

    - The budget actually benefited the lower two thirds more then the top third, the former of which who now pay only 17 cents in the dollar. It was ingenious, everyone benefited and incentives remained to move up the earnings brackets, but there was no favouring of any one bracket against another.

    - The changes to property taxes and the alignment of the top personal rate to the Trustee rate mean we actually get more tax now from the upper brackets then when the income tax rates were much higher. I don’t know what your perceptions are of tax, but 33 cents at 49.000 and 38 cents at 71000 seems punitive to me.

    - Everyone understands that the CEO of telecom and the likes get a fillip from a tax cut. But can you see that it is impractical to devise an economy’s tax policy around a few dozen outlier individuals?

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  88. questlove (242 comments) says:

    Good article from Armstrong – http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10755634

    As much as Bill English downplayed yesterday’s downgrades of New Zealand’s credit rating, the double whammy from Standard & Poor’s and the Fitch ratings agency inevitably casts a big shadow over National’s claim to be the most competent manager of the economy.

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  89. Francis_X (149 comments) says:

    Indeed, questlove. If anything, this is yet another sign that National is utterly clueless when it comes to the economy.

    Their much vaunted Jobs Summitt in February 2009 came to nought.

    The cycleway produced a couple of hundred jobs instead of the 4000 that key promised.

    The tax cuts haven’t boosted economic growth.

    Unemployment is still double what it was in 2007/08.

    Youth unemployment is 50,000+ and Key’s solution is a blimmin “bene card”?! Dear, oh dear!

    Key and English can bluster and smile and wave till the cows comwe home, but ratings agencies are a fairly impartial verdict on how this government has managed the economy.

    Thankfully for Nat/ACT supporters though, the public are high on rugby and couldn’t care less. Key could be caught shagging a flock of sheep and the public’s only question would be, “How is Dan Carter’s groin?”

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  90. Francis_X (149 comments) says:

    Hmmmm, the media got it wrong (again). NZ has not been downgraded twice under National governments.

    It’s actually THREE times. (Four, if you include Rogernomics Labour.)

    http://www.nzdmo.govt.nz/sovereigncreditratings

    It’s interesting that, during Labour’s last tenure as government, our Credit Rating was actually UPGRADED. Well, fancy!

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