New NZ debt ceiling at 30% of GDP announced

WELLINGTON: New Zealand has a new debt ceiling, which will be 30% of GDP, Finance Minister Grant Robertson has announced.

This came with a warning the present Budget would show a worsening fiscal position compared with forecasts put together by the Treasury in December last year.

However, this new debt target comes with a catch: the Treasury will now measure New Zealand’s net debt by taking into account a wider range of Crown assets such as the NZ Super Fund, and liabilities such as the debt held by Kainga Ora.

Overall, this has the effect of reporting a lower net debt metric than at present, but the Treasury will continue to publish the current measurement, so historical comparisons can be made.

This is not the first time New Zealand has changed the way it calculates and publishes its debt levels. A change was made in 2009, which switched to the old net debt measure.

As of the end of February, New Zealand’s net core Crown debt stood at 35% of GDP, or about $125 billion under the present measurement.

Under the new measurement, net debt is about 20% of GDP.

Mr Robertson said the recommendation had come from the Treasury and would make New

Zealand’s debt metric more internationally comparable. Under the old system, the new debt ceiling would work out to be 50% of GDP.

Mr Robertson took a swipe at the previous government which had decided to roll out debt reduction targets, which aimed to reduce debt to a certain level by a certain date. Mr Robertson’s first debt target did this too: aiming to reduce net core Crown debt to 20% of GDP by 202122.

The minister said it marked a ‘‘shift in position for Treasury to recommend such a change’’, to a ceiling, rather than a point in time target.

‘‘They have noted that a low point target has been set well below a fiscally sustainable level. These targets can lead to decisions to not fund critical infrastructure in a timely manner. It is timely to move away from that.’’

Using IMF comparators, New Zealand’s net debt as a percentage of GDP of 20% would compare with rates of 37.5% in Australia, and 76.1% in the UK.

Mr Robertson made the announcement at a preBudget speech in Wellington.

He said the Government would not be increasing the amount of money it spent on capital projects, in light of inflationary pressures.

Mr Robertson is also changing the way the Government targets surpluses. He said that once the Government had reached surplus, it would target a surplus of 0%2% of GDP over time.

‘‘The range is based on advice from the Treasury and is the same as the forecast ahead of the 2017 election under the previous government’s spending plans for the coming years.’’

He said the ‘‘surplus rule’’ would be ‘‘the primary rule that controls our spending decisions and require value for money’’.

It would mean ‘‘current spending is paid for from current revenues. It means the current generation is paying for its own consumption, taking pressure off inflation, and putting the country in a better position to invest in infrastructure for future generations’’. —