Huzzah. Grant Robertson has announced that the Government will relax the fiscal responsibility rules, although not until after next election.
Thomas Coughlan at Newsroom has provided this perceptive comment on what has happened:
The Government will scrap specific debt targets in favour of moving towards a target range, Finance Minister Grant Robertson has announced.
The current target, part of Labour’s Budget Responsibility Rules, is to reduce net debt to 20 percent of GDP by 2021/22. When that target is achieved, it will be replaced with a debt range.
Robertson did not specify what this was, but said Treasury had provided him with advice.
“At this point we are looking at a range of 15-25 percent of GDP, based on advice from the Treasury,” Robertson said.
“This range is consistent with the Public Finance Act’s requirement for fiscal prudence, but takes into account the need for the Government to be flexible so that it can respond to economic conditions,” he said.
Robertson made the remarks at a pre-Budget speech to the Craigs Investors Conference. He also said that Treasury’s forecasts, which are released alongside the Budget will show the Government on track to meet its Budget Responsibility Rules.
Still too low?
The Budget Responsibility Rules have been criticised for being unnecessarily restrictive on the Government and holding back Robertson from making vital infrastructure investments.
Last year, Newsroom reported the Government could choose keep debt at roughly 30 percent of GDP before frightening ratings agencies.
This would equate to an extra $35 billion worth of borrowing.
Robertson responded to some of these criticisms.
“For me it is a question of balance. We have made, and will continue to make, significant investments in our future, but we also know that the volatility of the world, be it economically or through natural disasters, biosecurity incursions or unexpected events, is never far away,” he said.
Trading Economics reports New Zealand’s current debt to GDP ratio at 19.9%. By comparison Australia’s is 40.7%, Germany is at 60.9%, the United Kingdom is at 84.7%, the US at 105.4% and Japan is at an eye watering 253%. Debt of itself does not stop economies from functioning.
Of course this has not stopped National from engaging in frankly irresponsible scaremongering.
And when you have hospitals with raw sewerage in the walls, teachers and other workers with significant catch ups required, an urgent need to develop sustainable energy sources and light rail to build why wouldn’t you run up debt. Especially when interest rates are so low.
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