We can relax: S&P approves

The Budget has been given a big thumbs-up by Standard & Poor's, with a surprise upgrade to New Zealand's credit rating.

The move gives a boost to mortgage-holders, businesses and the Government, which could have faced higher interest rates if the credit rating had been cut. Prime Minister John Key warned this week that a ratings downgrade would add about 1.5 per cent to mortgage interest rates.

The credit rating agency put the country's AA+ rating on "negative outlook" early this year, pending proof of a realistic plan to curb rising debt. After meetings with S & P analysts this week, the Government was confident it had done enough to avoid a downgrade, though Mr Key said on Monday he expected it to retain its negative outlook.

However, S & P yesterday announced an upgrade from negative to stable outlook. At the same time, rating agency Moody's reaffirmed its stable outlook on the country's rating.

S & P analyst Kyran Curry said Budget measures would support the stabilisation in the Government's fiscal position over the medium term.

"The successful delivery of this strategy, returning the operating position to surpluses over the cycle and maintaining low debt, is consistent with maintaining the AA+ foreign currency rating."

Finance Minister Bill English said the upgrade recognised the Budget had struck the right balance between supporting New Zealanders through the recession and a credible fiscal and economic plan longer term.

The Budget forecast a decade of deficits to double gross debt by 2016 to 43 per cent of gross domestic product, despite the cancellation of tax cuts.

Net debt what the Government owes less what it owns was tipped to rise to 36 per cent of GDP by 2016-17.

That prompted the Government to move the goalposts for its debt target, dumping the aim of 20 per cent of gross debt and adopting a goal to keep net debt "consistently below 40 per cent of GDP".

- © Fairfax NZ News