Banks add billions to debt plan
Finance Minister Grant Robertson says the Government still plans to cut debt levels, as economists warn billions more will be borrowed over the coming years.
In Opposition Labour laid out a fiscal plan that would borrow about $11 billion more than National had proposed, but still cut debt as a share of the total economic output from 24 per cent to 20 per cent by 2022.
The plan formed a major point of contention during the election campaign, as National’s then finance minister, Steven Joyce, was widely mocked for his claims that Robertson’s plan had a major ‘‘fiscal hole’’.
But bank 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.
ANZ has forecast that Labour will borrow $13 billion more than its pre-election fiscal update maintained it would over the next four years, although about $3b of that would go to the New Zealand Superannuation Fund.
This would see net Crown debt at 23 per cent of gross domestic product, 3 percentage points higher than Labour’s plan.
Outgoing ANZ chief economist Cameron Bagrie said the estimates for new spending were conservative. ‘‘Spending pressures are all headed one way – and a lot depends on the economy holding up.’’
In the days following the election Bagrie had also warned that if National had been able to form a Government, it too was likely to borrow more than planned to secure the support of NZ First.
Bank of New Zealand has also indicated it expects borrowing to be stronger than Labour had flagged. Strategist Jason Wong said the half-year economic and fiscal update would probably show ‘‘in the order of’’ an additional $2b to $3b a year in bond issuance in the coming years.
BNZ senior economist Craig Ebert said the figures were hard to determine so early in the term, but borrowing ‘‘could amount to a number of billion dollars’’ more than Labour had outlined.
ASB has revised its economic forecasts in light of the new Government, which saw it cut its forecast for growth to peak at 3.8 per cent in 2018, to 3.2 per cent.
However, ASB chief economist Nick Tuffley now forecasts that unemployment will fall to 3.9 per cent by 2021, while wage growth would rise to 2.8 per cent by 2020, on the back of lower migration and plans to hike the minimum wage to $20 an hour by 2021.
Tuffley said based on its forecasts, and the assumption that Labour would stick to its spending plans, ASB was forecasting borrowing would be $1b higher than Robertson had signalled.
‘‘Any slippage in [spending plans] will mean more debt issuance,’’ Tuffley said.
During question time in Parliament yesterday, Robertson maintained that the Government was sticking to its pre-election debt plan.
‘‘But what we’re not prepared to put up with is a situation where we do not have enough affordable homes, where we have not made contributions to the [NZ] Super Fund, and where an enormous social deficit is growing,’’ he said.
‘‘In those circumstances a slower debt repayment track is totally appropriate.’’