Robertson reluctant to cut debt ‘too much’
Grant Robertson says long-term spending pressures mean Labour is unlikely to try to pay off New Zealand’s government debt.
Labour has set itself a target of reducing Crown debt to 20 per cent of gross domestic product by 2022, which Robertson has dubbed his ‘‘anchor’’ of fiscal discipline.
Currently, net debt is about 23 per cent of GDP. In nominal terms, debt will be about $5 billion higher than it is now (about $62b) under Robertson’s five-year target, however as a share of the economy it will be lower.
But the finance minister indicated that beyond 2022, Labour may not look to go further, describing the former National-led government’s plan to cut debt to 10-15 per cent of GDP as ‘‘unrealistic’’.
‘‘The former government has a track that had debt to GDP going further down’’ to 10-15 per cent of GDP. ‘‘I think that’s pretty unrealistic myself,’’ Robertson said.
In the weeks since he became finance minister, Robertson has made a series of claims that New Zealand’s infrastructure is in greater need of investment than National had let on. The pressure would build over time, Robertson said.
‘‘Look at the ageing infrastructure just in terms of water. We’ve just heard about it in the last few days. Equally, the average age of our schools is over 40 years,’’ Robertson said.
‘‘If you project out just beyond the forecast period [which is five years] there is going to be an ongoing need for serious investment in our infrastructure. We couldn’t do that if we kept that debt track going in that direction [downwards]. But we can see it at a moderate level for those shocks.
‘‘We have to set an anchor for ourselves and we’re doing it with that 20 per cent [target].
Beyond that, debt could remain at 20 per cent of GDP ‘‘give or take’’, Robertson said. ‘‘It might be able to go down a little bit but that direction that the [former] government was going, I don’t think is sustainable.’’
While at 20 per cent New Zealand’s debt as a share of economic output is among the lowest of any OECD economy, there has been a general consensus that it needs to be because household debt is high, the economy is vulnerable to global shocks and New Zealand is at ongoing risk of earthquakes.
When National swept to power in 2008 during the global financial crisis, Crown debt was extremely low, allowing the former government to maintain spending and cope with a series of major earthquakes, without debt rising to levels that would trouble credit rating agencies.
National finance spokesman Steven Joyce said the ‘‘cautionary tale’’ was New Zealand’s experience over the past decade, showing the Government needed to get debt low during the good times.
‘‘Having that buffer is really important.’’
Having debt at 10-15 per cent of GDP gave New Zealand the room to face the GFC and the Canterbury earthquakes without having debt rise far above 30 per cent of GDP, above which ‘‘things like our risk rating and our interest rates start going up’’.