17 July 2009 Media Statement

Fitch warning a wake up on bank profits.

Warnings of a credit downgrade because of our current account deficit are a wake up call about the sums we are paying foreign banks in interest and profit to fund the deficit, Progressive Wigram MP Jim Anderton says.

The Fitch rating agency warns that New Zealand has a fifty-fifty chance of a credit downgrade because the current account is very high. Unless it halves, we will be downgraded, and households, farmers and businesses will have to pay higher interest rates.

Jim Anderton says the external deficit is already costing New Zealand too much.

“We sent $11.7 billion in interest and profit to overseas-owned banks last year, more than the government collected in GST revenue. Farmers alone are paying interest of around six billion dollars in farm debt.

“Interest rates charged here by the Australian-owned banks are higher than the same banks charge in Australia. Their margins are higher.

“We are sending that money to the overseas-owned banks because they are financing the current account deficit. When house prices rose, New Zealanders borrowed against the capital, bought new plasma tvs, but didn’t increase our capacity to earn more.

“Now the bill is starting to come in.

“Current account deficits have a history of reversing themselves sharply, with very sudden falls in consumption. That amounts to a poor outlook when the government is already hoping the recession will end by itself.

“Unfortunately the government doesn’t have any economic plans to reduce the current account deficit and it doesn’t even recognise the level of profits going to overseas-owned banks are a problem.

“Rogernomics was meant to end the current account deficit problem for ever. It failed abysmally.”

ENDS

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