The Pre-election Fiscal Update projects that gross debt will rise from 17.4% today to 24.3% of GDP in five years. Fortunately, we are facing these tough economic times starting from a solid position due the the Government’s policy of running surpluses and paying down debt, rather than slashing taxes. 24.3% debt is right at the upper edge of even National’s comfort zone but it won’t be disastrous. We shouldn’t choose to increase our debt to such a level but we can deal with it when economic conditions force it on us.
The same goes for unemployment. It is projected to rise to 5% but the rise is coming of a very low base and, because low unemployment is self-reinforcing, the rise will not be as bad as it has been during other economic crises.
These are the rainy days. Fortunately, we’ve acted wisely during the good times. We face the storm in much better condition than countries like Australia who allowed their banks to become exposed to risk on the international credit market, run higher unemployment policies, and undercut their tax base.