The case for borrowing
yesterday that he was disappointed by the lack of serious conversation on fiscal stimulus. Reading between the lines, it seems that Orr, like many of the world’s central bankers, is sick of fighting economic fires on his own. He noted New Zealand’s low debt levels, implying the Government had room to borrow if it needed to.
Even Treasury said net debt could rise to roughly 30 per cent of GDP and still leave headroom for a crisis like an earthquake or a recession.
The case for borrowing has never been greater. New Zealand has a legislative framework, mainly based around the Public Finance Act, that works to keep debt levels low, except during a crisis, when they need to rise.
We carry much lower debt than most developed countries, where it’s not uncommon to have debt sitting at above 60 per cent of GDP. Of course, the issue isn’t just about the level of debt, it’s what to spend it on. Many economists have complained about the lack of decent ‘‘shovel ready’’ projects awaiting investment.
The Government is working on a pipeline of infrastructure projects, which should go some way to solving this issue.
The finance problem is easy. We need more, and we need it now. If National really wanted to do something for the economy, it would set a public debt target above Labour’s. Such a target would probably align quite closely with where the business community would like to see public debt. The problem, however, is political.
It would force politicians of all parties to grapple with the idea that low debt isn’t always the answer.
Like most democracies, New Zealand has a history of governments getting into debt traps. Governments over-promise to win elections and pass the buck to future generations. Ruth Richardson’s landmark Fiscal Responsibility Act, now part of the Public Finance Act, was designed to stop to this, and it’s been largely effective.
But now the problem is the other way around. Governments aren’t investing in the infrastructure future generations will need and deserve.
It should be an issue conservative parties care deeply about. Conservative political philosopher Edmund Burke famously said that society was a contract, not just between citizens and their governments, but between different generations – between ‘‘those who are living, those who are dead, and those who are to be born’’.
But for National, that means giving up one of its favourite economic arguments to use against Labour. It would be a big political play, but if the economy’s on the line, it might be one the party’s forced to make. Going lower risks looking out of touch, and undermining the economic credibility National is so keen to defend.