Credit downgrade starts to bite

Results of the Government's first long-term bond tender since the credit downgrade show that the cost of borrowing has started to rise, Green Party Co-leader Russel Norman said today.

"The credit downgrade is now starting to bite and add significant deadweight costs to the New Zealand economy," said Dr Norman.

The tender of long-term Government bonds closed at 2:15PM today with average successful yields (for bonds maturing in 2023) 13 basis points higher than the last tender held directly before the downgrade.

"The Government now faces increased costs for borrowing as a result of its own poor economic management," said Dr Norman.

"This extra cost will fall on future taxpayers who will have to pay back the extra debt.

"Unfortunately, the costs of private borrowing will increase as a result of the downgrade. Homeowners and businesses alike will face higher borrowing costs.

"The resulting deadweight costs of higher interest rates will hurt the back pockets of the average New Zealander and slow the recovery of the economy.

Dr Norman said the Government had to take responsibility for the double downgrade. Standard & Poor's commentary surrounding their downgrade highlighted the failure of the Government to address their own fiscal problems related to the earthquake and stimulus spending along with the wider structural issues faced by the economy reflected in a deteriorating current account deficit.

"The National Government's failure to raise a levy to help pay for the Christchurch rebuild would have assisted their fiscal position and helped avoided a credit downgrade," Dr Norman said.

"The Government's dismissal of a comprehensive tax on capital gains would have greatly assisted the rebalancing of the economy moving scarce capital out of property speculation and into more productive uses. Again, a capital gains tax would have helped avoid a damaging credit downgrade."