Remember when John Key used to say “New Zealand has a growth problem, not a debt problem”? He doesn’t say that anymore, which is a pity because we do have a growth problem, not a debt problem, but the Government is acting like we’ve got a debt problem that needs to be tackled first.
Yes, our gross debt is $45 billion, $15 billion more than predicted before the election and $10 billion more than projected just in December. Our gross debt has gone up $13.5 billion in the past year. Our net debt position, however, is better than expected. It went from $1.8 billion to $3.4 billion and, at 1.8% of GDP, is below forecast. Treasury explains:
[the] gross debt figure includes a component of Reserve Bank bills that (like settlement cash) have corresponding and offsetting assets and that were issued for liquidity management purposes, rather than reflecting the government’s underlying borrowing needs. Excluding these bills, gross debt would have been $40.7 billion (22.6% of GDP).
Although gross debt has increased, financial assets have also increased as a result, minimising the impact on net debt.
It’s like when you get a mortgage. Your gross debt goes up but because you’ve used that debt to buy an asset your net position doesn’t change.
Yes, Moody’s said our credit rating could be downgraded if we let debt grow out of control over the long-term but they re-confirmed our AAA rating. There is no immediate threat to our credit rating from sensible borrowing in the short-term. Anyway, a credit rating downgrade isn’t something to be avoided at all costs, particularly if the cost is a longer and deeper recession. We’ve had lower credit ratings in the past and it hasn’t been the end of the world.
National has been using the fear of debt as a smokescreen for its rightwing agenda. English has justified spending cuts and not providing a jobs package because of debt levels. Nick Smith has claimed we will get a credit downgrade if we don’t slash ACC. The Black Budget that is coming will use debt as an excuse to cut spending on public services like health and education (miraculously, those same supposed debt problems won’t necessitate reversing the recent tax cuts or cutting road spending).
We don’t want debt to get out of control but it isn’t out of control. It’s certainly not as much of a problem as a prolonged recession, service cuts, and 60,000 more unemployed Kiwis.
When National says you have to accept cuts because of debt, remember what that nice man Mr Key said: ‘we don’t have a debt problem, we have a growth problem’.