Fitch says we need fiscal consolidation

Fitch Ratings released:

Fitch Ratings has revised the Outlook on New Zealand’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at ‘AA+’.

The Outlook revision reflects our view that a substantial debt reduction is becoming more difficult to envisage, as fiscal consolidation has been delayed in the past few years. The general government debt-GDP ratio has increased substantially over the past six years as the economy has been buffeted by a number of shocks.

In other words, we can’t wait much longer to start repaying debt.

The main change based on the election outcome could be the composition of the consolidation. The incumbent National Party-led coalition focuses on expenditure constraint, while a Labour Party coalition would emphasise revenue measures.

Labour will increase taxes rather than restrain spending.