NZ’s debt of $60b-plus not to be ignored

Budget day is the annual stocktake of the economy and the public services it supports. New Finance Minister Steven Joyce will give a glowing report today on an economy in its fifth year of growth, generating more business, jobs and tax revenue.

The revenue is so strong that by February, eight months into the fiscal year, it had produced a surplus of $1.4 billion, nearly a billion more than projected last year. At long last, the books appear to be securely balanced, much as they were through the nine years of the previous Government.

The fact that it has taken nearly nine years for the public accounts to fully recover from the global financial crisis, and six since the Christchurch earthquake, should give all parties in Parliament pause for thought.

They all know New Zealand’s ability to cushion its people through the 2008-09 recession and absorb the cost of the 2010-11 earthquakes owed everything to the surpluses run by previous Governments that had reduced the net public debt to a very low $10.3 billion, a mere 5.4 per cent of GDP.

After the recession and the earthquake repairs the debt leaped to $55 billion by 2013, 25.5 per cent of GDP. Despite the growth that resumed in 2013 and continues to the present, the debt has risen to more than $60 billion and still stands at just under 25 per cent of a larger economy. The present Government has been content keep the net debt on a slowly declining trajectory to drop below 20 per cent by 2020. Joyce has already announced that this year’s Budget will set a new target for debt down to 10-15 per cent of GDP by the middle of the next decade.

The question for all parties should be, is this reduction fast enough?

We need to hope there will not be another global crisis in the next eight years. We must also hope another earthquake does not hit a city in that time. Joyce himself has observed that if the Kaikoura earthquake had been centred a little further north we would now be faced with rebuilding Wellington. No part of New Zealand is far from a plate boundary and the Great Alpine Fault is due to move again. Meanwhile, the Earthquake Commission has to restock its coffers.

Yet no party in Parliament sounds concerned that National’s debt reduction track might be too slow. Labour and the Greens say it is too fast. They believe the Budget surplus hides “infrastructure deficits and social deficits” and have agreed to review the 2020 debt reduction target if they get into government together. The Act Party, meanwhile, seems to want tax cuts ahead of debt reduction.

Joyce will go some way in all those directions this afternoon. Some of his surplus will be spent on new infrastructure projects, some on additional health, education and social supports, some on raising the income threshold of each tax rate, which will amount to tax cuts. He has the luxury of a surplus that will provide outlays on all these front in an election year.

But the debt path matters most if the Government is to ask for a fourth term with its fiscal reputation intact.