Trim The Fat? Why Not Cut The Crap Instead?

John Key and Bill English have stated many times that our state sector is bloated, and that if state spending is not slashed we risk a credit rating downgrade.

This has now been exposed as a falsehood.

Here is the text of a press release from Standard and Poor’s (h/t Bryce Edwards):

Wellington, Feb 16 NZPA - There is little fat in the state sector to find savings from, international ratings agency Standard & Poor's says.

S&P sovereign rating analyst Kyran Curry told the New Zealand Herald the agency welcomed Prime Minister John Key's state-of-the-nation speech, in which he indicated plans to hold increases in government operational spending at $800 million to $900 million a year and return to surplus by 2014 or 2015.

"We acknowledge the Government's fiscal position is in a cyclical weakening point and the sooner it returns to surplus the better. This Government has articulated a fiscal consolidation strategy and we believe it's credible."

However he did not agree with Mr Key that the state sector was "bloated and inefficient".

"Generally, we look at the government in New Zealand as being relatively small and compared to its peers it's quite efficient."

Mr Curry said New Zealand was "relatively light" in government related entities.

He noted the Government's plans for partial asset sales, "but if you look at what's left, the sorts of government related businesses in New Zealand are quite minimal compared to a lot of other countries".

The agency last year put New Zealand's AA+ credit rating on "credit watch negative". A downgrade in New Zealand's credit rating would lead to higher interest rates for government and private sector borrowing.

Ratings agencies always like to see evidence that governments have costs under control. But S&P is saying that the state sector is already lean. It doesn’t appear there’s much fat to trim.

Those who understand such matters have long maintained that the crown accounts are in pretty good nick, and that household debt is the real reason why a credit downgrade might occur. S&P’s analysis appears to back this up.

It’s also interesting to read that S&P doesn’t appear that excited by asset sales. We’ve already flogged off many of the best assets, and there’s bugger-all left.