Days after saying ‘we’ve always said, we aren’t that worried about, um, whether the Crown needs to borrow a bit of money [for a] programme of tax cuts’ Bill English has accused Michael Cullen of â€˜um, ah, borrowing for tax cuts’.
What English’s researchers have discovered is that the amount of Government Bonds on issue is forecasted to increase $2.41 billion from this year to next. He wants you to think this is to pay for tax cuts (he knows it’s not). The truth is significantly more boring.
When Labour came to Government in 1999, gross Government debt was 35% of GDP, it set a target of reducing it to 25%, then 20% of GDP. It is currently 18.5%. The Government wants to keep debt to GDP broadly stable, which is good for the financial system, giving the necessary liquidity to the New Zealand currency and money markets. So, as the economy grows, it gradually increases its nominal debt as well. Here are the projections from the same table (page 57 of link) Bill’s researchers found (figures in millions):
So, debt levels are going to fall a bit and nominal debt will remain pretty much the same. Could this mean debt is going to be used to pay for tax cuts? No. The cost of a tax cut is not a one-off, you would have to increase borrowing each year to pay for tax cuts with borrowing. Key wanted us to do that when he was finance spokesman but these projections do not show that kind of reckless behaviour.
The Government is keeping debt at roughly the same levels and has ruled out increasing borrowing to fund tax cuts, a responsible and moderate position. Compare that to Nationals’ position on debt. First problem: it depends what day it is and whether you’re speaking to Bill or Mr Slippery here’s a selection of their various policies:
Let’s make a dangerous assumption and say Key has National’s policy correct: they want debt at 25% of GDP. In other words, National wants to borrow about $10 billion, which will cost at least $700 million a year in interest, and would be hugely inflationary. An expensive, unnecessary, and unwise policy. Another one they’ll try to slip their way out of, no doubt.