- Date published:
9:34 am, December 20th, 2020 - 22 comments
Categories: capitalism, covid-19, debt / deficit, Economy, grant robertson, labour, national, same old national, treasury - Tags:
New Zealand like most countries across the world in the last year, has gone deeper and deeper into public debt.
It’s pretty clear that the New Zealand government’s response to economic crisis from lockdowns and global trade crashes by spending tonnes of debt money has been extremely effective.
Debt is no longer a dirty word in Wellington.
Yet for some, it’s simple: debts must always be paid back.
Surely our huge new debt means taxes have to get raised in the future?
Well first the good news. In the past our public debt was even larger than seen today, and we’ve always managed to overcome that debt through a variety of methods.
Back in the day, a fast-growing emerging country like ours would run balance of payments current account deficits and slower-growing countries would run surpluses.
But we’re now a developed economy and the pattern is reversed, with many emerging economies running large surpluses or even balanced current accounts when one might reasonably expect that they would be running deficits, and thus supporting demand in the rest of the world.
Now we have advanced economies with debt that already appears too high, especially against a backdrop of ageing populations that just can’t do higher taxes, but there’s not a reserve bank within a thousand k’s that is remotely worried in the medium term.
The bad news is that the old sentiment of restraining further public borrowing now the economy is going gangbusters again is still strong. Here’s National’s version:
We’ve raided the rainy day fund to weather this economic crisis but now that the economy is recovering it’s time for a sensible plan to pay down debt so we are ready when the next economic shock arrives” – that’s National’s economic spokesperson Andrew Bayly. “Saddling our future generations with more debt than absolutely necessary is irresponsible and economically reckless.”
But the decisions of our Minister of Finance since March 2020 are pretty much identical to that of Prime Minister Robert Muldoon in formulating with Bill Birch the Think Big projects in response to the oil crises. Public debt is good, and on big build infrastructure projects, real good.
You can start to see this start of an ideological turn in policy about public debt in this paper from the Reserve Bank Governor Allan Bollard, but still there on p. 53 he says:
A return to sustained fiscal surpluses will, over time, mean a fall in the level of net public debt. But as governments do not generate much of their own income, returning to surpluses involves some mix of discretionary spending cuts, or increased taxation.”
Minister of Finance is apparently rejecting that simple binary.
With GDP now surging ahead, and government income surging with it, there’s no need for any such restrictive anxiety.
Core Crown tax revenue is forecast to be up by $16 billion, when compared to the PREFU. Net core Crown debt peaks in 2023-24 at 45.6% of GDP, and pretty much hangs there.
If anyone needed reminding, National in the previous government responded to a need to significantly lift debt to fund recovery by selling off 49% of our electricity generators.
Debt barely went down. They just lied, and the rest just made money.
Without much fanfare, Minister Robertson has used 2020’s crisis to bury the historic scourge of monetarism and within it the excuses of the governments that used it as a pretext to sell off our key government income generators.
Rather than paying our debt back to ourselves for decades like some cosmic never-ending universal mortgage, all we’ve had to do is organise things differently.