Amongst all the hype of the 2010 Budget announcement, either for or against, there has been little mention or analysis of the nation’s ever-growing debt burden.
The government has committed to borrowing $12.5 billion over the next year and $39 billion over the next four. If there’s one thing a budget advisor will tell you when you can’t pay your bills, it’s that you shouldn’t get deeper into debt. Yet we are, and rapidly too.
The Minister of Finance might proudly point to our comfortable position compared to other OECD countries. After all, New Zealand’s net external debt, which has grown to $168 billion, is ‘only’ 90% of GDP and is projected to grow to 100% by 2014, while the UK debt currently stands at over 400%.
Our public net debt, just above 5% of GDP two years ago, now stands at 15%, and will grow to a projected peak of 27.4% by 2015. The cost of servicing that debt will peak at just under $6 billion per year, representing over $1,200 for every person in New Zealand. The UK public net debt is currently 62% of GDP.
However, comparisons are odious. New Zealand may be at an earlier stage of economic development, with the UK as a dire warning of where we will end up.
The six key drivers identified by Bill English to better manage our economy are nothing new. They have been part of economic packages both here and abroad for decades, and the result has always been the escalation of total debt compared to GDP.
During the global financial crisis our Reserve Bank introduced several innovative measures to support the New Zealand debt markets, enhance financial system liquidity and help ease some of the pressures on corporate sector funding. Budget 2010 was the opportune time for the Government to develop those innovative liquidity facilities to the next stage.
The Government should have directed the Reserve Bank to use those facilities to provide the funding required for: national and local infrastructure programmes; all shortfalls not met by government revenues; and the refinancing of all current debts held by the Government and its agencies, i.e. SOEs, DHBs, etc.
This productive and efficient use of our Reserve Bank could see debt servicing costs drop dramatically. A mere 1% service charge on this facility could make a dramatic difference to the predicted $6 billion interest bill and even a painless reduction of our debt.
Instead, Budget 2010 is yet another lost opportunity for visionary innovation and true economic recovery.
ENDS
Contact: John Pemberton, Deputy Leader, DSC