Govt will miss debt target, BNZ warns
A slowing economy and ‘‘high expectations’’ from voters for spending means the Government is likely to miss its debt target, a top economist is warning.
Bank of New Zealand head of research Stephen Toplis said yesterday that the Labour-led Government should focus more on the quality of its spending, predicting it would soon become clear it would not meet targets it put in place while in Opposition.
Finance Minister Grant Robertson has committed to reducing net debt to 20 per cent of gross domestic product by 2021, while increasing spending in a number of areas.
The so-called Budget responsibility rules, agreed with the Green Party, have been controversial since they were established. They were questioned by the National Party in a key preelection attack by former finance minister Steven Joyce.
Unions have urged the Government to abandon the rules, while former ANZ economist Cameron Bagrie has argued in recent days that the targets were not likely to be met.
Toplis said BNZ had not made formal forecasts of where government debt was headed, but warned it was ‘‘intuitive’’ that the pressures were pushing the Crown’s balance sheet in the wrong direction.
He noted the Treasury had already warned that economic growth was slowing, which will inevitably affect tax revenue.
‘‘We know that the electorate has incredibly high expectations for the Government to rescue them, and the pressure is going to be on them left right and centre to end up spending a bit more than forecast,’’ Toplis said.
‘‘So if your revenue’s down just a smidgen and your expenses [are] up just a smidgen, that can have quite a big impact on your bottom line.’’
Toplis said that he was not arguing for the Government not to spend more money, with certain types of spending likely to benefit growth in the longer term. ‘‘There’s too much focus on the debt target ... The focus should be on the quality of the spending and the quality of the revenue, for that matter,’’ Toplis said. ‘‘The debt ratios in an economy that needs lot of infrastructure and can show that the infrastructure will provide good returns – it’s fine if the debt ratio goes up for those reasons.
‘‘But if your debt ratio is going up because of questionable spending,’’ the debt ratio does matter, he added.
‘‘Labour governments like universality in [their] policies, but isn’t it a little bit questionable that I will be able to send my kids to university for free, given my ability to pay for it?’’
Toplis said he supported paying for people to go to university ‘‘when they need support’’, but not simply because it was a political promise.
‘‘It’s quality, this is like an investment. Don’t just invest in areas because you said you would – that’s dumb investment.’’