Economists quoted in a Reuters report were unfazed by news that the New Zealand Government has cut its growth forecast for 2019/2020 and is flagging a budget deficit along with a plan to invest more than $12 billion on infrastructure projects.
National – to be expected – found fault with the government’s fiscal plans and the resultant implications for the country’s public debt. The Nats were supported by some commentators.
What the debt fretters would say about the monumental public debt in the United States, where the focus on presidential impeachment proceedings tends to divert attention from the fiscal folly of the nation’s leaders, can only be imagined.
For those who want the NZ numbers, the Treasury has posted them here.
Westpac Bank said the treasury update was a “damp squib” and would have little impact on forecasts for GDP, inflation or interest rates.
Spreading the substantial lift in planned capital spending over many years was “a wise way for the government to run its infrastructure programme”, said Westpac senior economist Dominick Stephens.
S&P Global was relaxed, saying New Zealand’s sovereign credit rating can absorb more fiscal spending even as it delays a return to budget surpluses.
But hey. What would they know.
NZ Herald readers were treated to the wisdom of broadcaster Mike Hosking, host of the Newstalk ZB Breakfast show, who declared:
“Nineteen billion dollars of debt is an eye watering amount of money. It blows net core Crown debt to over 21 percent of GDP.”
The capital investment announced by Robertson became a “spendup” in Hosking’s commentary and it resulted (he said) in New Zealand joining
” … too many other countries adding a pile of debt to the next generation to fund our lack of ability to pay for today’s requirements.
“Money might be cheap, but it’s still not our money, and that’s bad economics.”
The New Zealanders who have borrowed $275 billion for housing should take note (if they weren’t aware of how they have financed their way into owning a house). It’s not their money.
Whether it’s bad economics is another matter. The same goes for government borrowing.
But we wonder how much eye watering would be induced in Hosking if he mused for a moment on the magnitude of the US Government’s burgeoning debt.
Early this year the US government’s public debt climbed above $22 trillion,a rise of more than $2 trillion from the day President Trump took office in 2017.
Over the next 10 years, annual federal deficits — when Congress spends more than it takes in through tax revenues — were expected to average $1.2 trillion, which would be 4.4 percent of gross domestic product.
This was much higher than the 2.9 percent of GDP that has been the average for the past 50 years.
Although debt can serve useful purposes, very little of its growth over the last 50 years has been for the right reasons, according economist Pierre Yared.
His paper in the Spring issue of the Journal of Economic Perspectives lays out the political factors behind the growing debt and how governments can commit to fiscal responsibility.
An article on the Amercian Economic Association website says Americans of all political stripes are concerned about the growth of national debt.
Four in five Democrats and Republicans feel their leaders should do more to address the problem.
They are right to be worried.
Yared says modern governments—not just in the US but in countries around the world—are behaving like someone who wants to exercise but is never ready to start today.
The current era of political polarization, close elections, and aging societies give politicians strong incentives to leave the debt problem for future leaders.
The AEA spoke with Yared about the dangers that high levels of debt pose and some potential solutions for bringing it back under control.
A transcript edited for length and clarity is included in the article.
It includes:
AEA: To look at a particular example, US debt levels are over 100 percent of GDP. How concerned are you about the trajectory of US debt?
Yared: That’s a big question. I don’t think anybody has the answer to that. Just to be clear, that number does not net out the debt held by the agencies. And once you do that you get a smaller number of federal debt held by the public as a percentage of GDP. And, the latest number is 76 percent. Nevertheless, you’re absolutely correct. Debt has been on an upward trajectory. What concerns me is the long-term trend, not the specifics of where we are right now. Because over the long term, situations change. It’s better to take advantage of the good times, so that when situations do change we’re not stuck with problems.
Hosking and those who share his concerns about New Zealand’s fiscal position should take note of the level of American net debt – it’s 76% of GDP.
Then he can ease back on the eye watering. New Zealand’s net Crown debt is around 20 per cent and is far from frightening – at least for now.
Point of Order 