Finance Minister Grant Robertson drew diverse — and conflicting — responses to his announcement in a pre-budget speech that he has moved the Labour-led Coalition’s debt target from 20% of GDP to a range of between 15% and 25%, in the interests (he said) of greater flexibility to economic conditions.
From the Left, the CTU welcomed the move but said the government should go further and faster in relaxing the Budget Responsibility Rules because
“ … it is neither prudent nor responsible to privilege exceptionally low debt levels over major social, human, environmental and economic needs”.
From the Right, National’s Amy Adams insisted Robertson had “thrown in the towel” on the rules and is loosening the purse strings by tens of billions of dollars.
When in Opposition, Labour was being accused of having a $11bn hole in their proposed budget, although Labour and the Green Party committed themselves to the Budget Responsibility Rules and set a target of reducing net debt to 20% of GDP within 5 years.
Though still reiterating the government holds on to that, Robertson is now signalling debt in several years could be allowed to climb significantly higher. Another 5% of debt to GDP would mean, in today’s terms, borrowing roughly another $15bn.
Bill Rosenberg, of the CTU, reckons even 25% debt is low by international standards, and the bigger picture shows there is no point in having exceptionally low levels of debt and government spending when Kiwis are living in poverty, health systems are failing in important ways, working people and businesses are crying out for better education and training, and our environment deteriorates.
The “fiscal responsibility” rules of the last 30 years have accompanied historically high levels of poverty, unemployment, inequality, a deteriorating environment and a low value economy.
The CTU says the Budget Responsibility Rules are not fit for purpose in terms of New Zealanders’ wellbeing,
Robertson – of course – doesn’t concede he is bowing to pressure from the unions (or anyone else). He says the new range gives governments more capacity to respond to different circumstances.
“For example, a government may choose to move higher up the debt range to combat the impact of an economic recession, or where there are high value investments that will drive future economic dividends. At other times it may be prudent to reduce debt levels to the lower end of the range to provide headroom for future policy responses.
“NZ has low levels of government debt by international standards, but we remain vulnerable to shocks that are beyond our control, such as earthquakes and other natural disasters. We have made our commitment to keeping debt under control to ensure that future generations of New Zealanders are in a position to be able to respond effectively to any such shock..
Next Thursday’s budget will show the government will maintain government expenditure within the recent historical range of spending to GDP, which has averaged around 30% over the past 20 years.
The Crown accounts, for the first nine months of the June year, showed net debt was $60.51bn, or 20.6% of GDP.
Forecasts in Treasury’s half year fiscal and economic update in December showed net debt is forecast to be 20.9% in the year to June 30. It then was projected to ease to 19% by the 2021/22 June year.
In Opposition Labour laid out a fiscal plan which would borrow around $11bn more than National had proposed, but still cut debt as a share of the total economic output from 24% to 20% by 2022.
That policy became a major point of contention during the election campaign, as National finance spokesman Steven Joyce was widely mocked for his claim that Robertson’s plan had a major “fiscal hole”. Now those economists, who monitor the likely issuance of government bonds, are warning of pressure for Treasury to borrow billions more than Labour had signalled because of new spending promises.