The New Zealand Government's Debt Management Office (NZDMO) has announced a further increase in its domestic bond programme for the current 2010/11 fiscal year by NZ$1.5 billion to NZ$16.5 billion, saying it was seeing strong demand for such debt.
Around 60% of the domestic bonds issued in New Zealand dollars are bought by foreign investors, many of whom are keen to diversify away from European sovereign debt, US Treasuries and Japanese government bonds.
The increase is the second is just over 5 weeks.
The NZDMO announced on March 30 an increase in the borrowing programme by NZ$1.5 billion from NZ$13.5 billion to NZ$15 billion. See Gareth Vaughan's article from Marcvh 30.
The government is grappling with a blowout of spending linked to the Christchurch earthquake on February 22 and weaker than expected tax revenues from GST, corporate tax and income tax. This follows last year's tax package where income tax rates were cut, the GST rate was increased and corporate tax was cut.
Since the earthquake the NZDMO has issued an average of NZ$500 million of new debt every week. See Gareth Vaughan's article on ANZ's prediction of NZ$20 billion of borrowing this year.
"Since announcing a revision to the programme to NZ$15 billion on 30 March, strong nvestor demand has continued, with NZ$14.4 billion now completed," the NZDMO said in a statement.
"Today’s increase allows for the ongoing issuance of bonds ahead of the scheduled update to the programme to be announced in conjunction with the Government’s Budget on 19 May 2011."
41 Comments
Wow, the trend in that graph is scary...MMP can be blamed for big part of it...National is too scared to implement proper reform, as with MMP they have to keep most people in the room happy...
Originally in favour of MMP (because it works so well in Europe), I believe now that New Zealand is too politically uneducated for it to function. However, First Past The Post would not deliver either because the unproductive part of voters is in the majority, always voting for more handouts. Democracy is eating itself. The masses will always leech on the diminishing productive part (thank you Helen Clark for China Free Trade). Financed through debt majority appeasement is increasingly unsustainable and NZ will end in default and social demise. Just like big brother USA.
Our only chance: Bring in Meritocracy
Hi Bernard
Do you have any idea what maturity the bonds are going to be issued at?
If we need to issue debt, it makes sense to do it now before the global issues for sovereign debt hit the fan. Also judging by the language from Bill English, I suspect that the Government has already been told by the rating agencies that NZ will face a ratings downgrade soon resulting from a combination of our deterorating debt position and the change in metholodogy S&P are applying to sovereign debt. I would suggest they lock in the rates now and issue long term maturity. Fill you boots while you can.
Personally I doubt the capacity of NZ to repay its debt it is accumulating. The tax base is still heavily reliant on a limited, and diminishing number of PAYE earners. These are the same skilled people most in the demand across the ditch and elsewhere. And NZ is demographically doomed. It has an aging population, with unfunded pension and health liabilities and its population growth is weighted towards the welfare dependent. 40% of children are now in families dependent of welfare!!!
Oh well, I guess if a low populated island with limited military capacity, but which has the valuable water, arable land and energy sources vital for the future, is willing to sell you its future via debt issues, all to maintain unsustainable "entitlements", then just smile and wave boys!!!
At first it is understandable to think planned debasement will erradicate the debts...but remember these loans are for shortish terms and once the lenders catch a whiff of the decay, they will raise their price and shorten their terms.....the only people hurt in this debasement game going on are Kiwi who keep their savings in Kiwi$....you can bet Key and fellows have their money well offshore.
“sell off the Sovernity to off shore bankers Goldman Sacks for example.”
“the debt makes us all slaves to faceless offshore lenders”
You are right! The bastards will come in here, take your property, slap you around and indignity of indignities, sleep with your women. Quick, grab a pitch fork and man the battlements, there’s not a moment to lose.
We need to face reality
Given the Earthquakes , SCF , a benign GDP Growth , things are going to get a lot worse before they get better .
The problems at AMI are an unforseen consquence of the earthquake and some more of these are going to bite us on the backside.
NZ is facing a deep economic structural adjustment , and the sooner Dr Bollard , John Key and every Kiwi acknowlqgde this the better .
$NZD monetary supply (amount of actual money) = 200billion http://en.wikipedia.org/wiki/Money_supply#New_Zealand
$NZD total debt = 253billion http://en.wikipedia.org/wiki/Economy_of_New_Zealand
At an estimate 5% interest you need to borrow 12.6billion just to cover the interest another 7.5billion to pay some principal (assuming it's a 20yr loan) just to keep the monetary supply the same. (actually once you borrow it increases the monetary supply but you get my point.)
If NZ inc attempted to have ZERO DEBT it would be a mathmatical impossibility.
If you stop borrowing you guarantee deflation/bankruptcy etc. etc.
As incredible as it sounds the only way for NZ inc to keep up with it's debt obligations is to keep borrowing/creating money http://en.wikipedia.org/wiki/Fractional-reserve_banking
If the serfs wont do it then the Govt is more than happy to oblige.
I think they call that a ponzi scheme don't they?
Feck me, could I even imagine running my household finances like this? Oh, hang on. I'm not trying to buy votes.
Hang on a second. If something in our household craps itself, then if we don't have the cash to replace it, we do without until we do.
Just look to England at some recent civil unrest and see where our fate lies. The longer people live their lives with an entitlement attitude, the bigger the fall is going to be when the government can no longer find anyone to loan more money, or there's no more assets left to sell.
Hi Boatman
The issue is not with Earthquakes or SCF, it is will unsustainable and unfunded entitlement spending.
Please remember NZ was borrowing $250m p.w. before any earthquake or SCF collaspe. And all of this when the first unfunded babyboomers only start retiring and consuming vast amounts of welfare and even more scary health budgets.
Remember, those skilled PAYE earners who we pillage are not bounded slaves. They are free to hope on a plane any time, take their skills, tax base and assets, and to leave behind the debt.
And as Wolly notes, it also intends to punish savers by debasing the currency.
On a positive note, other Western Populist Democracies are in the same boat and sometimes worse.
As Alexis de Tocqueville noted in his 1835 classic book Democracy in America: "Democracy will last until Congress discovers it can bribe people with their own money".
In NZ we go a step further and bribe people with other peoples money!!
Re. "NZ Heads of Finance" - agree, as the saying goes, debt is the express lane to slavery.
In NZ we go a step further and bribe people with other peoples money!!
Haha I like that.
Thomas Jefferson was also onto the money issues, and it has unfortunately gone the way he feared for most of the last 100 years or so.
Just how much of the borrowing is needed because of the earthquake, and how much is blamed on the earthquake and actually needed because the books were never going to balance anyway?
It's all getting very bizarre that the Governement is talking about spending all of these billions on a rebuild that private individuals need to undertake. Yes there are infrastructure costs but $3b on top of what was already allocated for Sept 4 would surely cover that.
It seems most of the extra borrowing will go to prop up their lost tax evenue and liabilities from EQC and AMI.
It's all very frightening that Government talk of driving the rebuild and getting on with knocking things down. As a property person, I know that this is always the wrong approach, vacant sites are the downfall of most developers - so why encourage knocking down potentially salvageable or habitable buildings when you know that it will take years to rebuild - the only reason could be to make it look like you are doing something - which is never a valid reason at all.
Unfortunately there are people in charge who believe that progress is to erase history, and write out big cheques.
They don't realise that having a plan to best use existing resources, a plan to keep business owners, property owners and residents on side would be a far better way to solve current dilemmas.
Bernard is right with the heading on the graph - it's the kids we are expecting to pay. That's fraud, just as much as depleting their resource/pollution options.
We should be blody ashamed of ourselves. If we need the services Govt provides, one way or another we should pay the correnct price. Same with energy, and resources.
That, unfortunately, means either a substantial lowering of average levels of affluence, or a need to reduce population.
Notice nobody has suggested the obvious: reducing wages/salaries of the services we aren't paying for, until we are.
Of course, that won't give you 'growth' , but it was dependant on energy supply anyway.
She's a slow-dropping penny.............
The kids get the benefit of all the existing infrastructure in place, paid for by previous generations.
What's so bad about them paying for a little bit of what's being done in the economy now?
Inter-generational spending goes both ways you know.
Here, kids.
Here's a tractor. Sorry, there;s no fuel for it.
Here's a food - supply system. Sorry, it needed oil.
Here's how we transported things - sorry, the roads were made of oil.
Here's a sewerage system. We were too tight-arsed to make it a useful recycler of nutrient, we just pumped it out to sea. There. where the colour is different. Sorry, the pipes were made with oil.
Here's your water system. Local Authorities say that at about 20 years from new, it's cheaper to replace with new, as the escalating find-and-repair cost outdoes the new cost. That won't apply to you, kids - it's made from oil, so no replacement.
Here's all the plastics we used. Great range eh? Epoxies, pvc, all the goodies. All made from oil, sorry. You might have been able to recycle some, but that takes energy. Still, you might be able to re-use it for a few years.
Sorry about the climate - we chose to deny responsibilty for that. It won't get any worse, though, you've got no oil to burn. Oh no, that's right, the feedback loops have kicked in, you will have trouble.
Exellent.
Calm down and slap some more mud on the hut walls PDK....mix it with cow dung and straw...that's right...what's it like in the 12th century PDK...
I'm obviously light years ahead of you.
Good you're not a teacher, that's not a healthy style, indeed modern Critical Literacy would tear that wee piece to wee pieces.
What over the top drivel, reminds me of some add year's ago where some old geezer with his grandson, but can't remember what the add was for.
Greenpeace?
My opinions of most baby boomers are best left unsaid on this website, as they do not contribute to good debate or discussion.
But I make up for it, right Muppet!
Yer, you make up things Wolly, and bet you are a baby boomer or even worse may be an old codger on the Muldoon bribe given out to people of a certain age?
Muppet, no point worrying about baby boomers, we can still do pretty well using our intiative and a bit of hard work, there are always opportunities to be taken. But don't waste too much time on a blog site, it's not productive enterprise and won't do you much good.
Yep the kids are going to have to pay for the well off to have tax cuts - its really as simple as that. When labour were in power they were constantly making big surplusses and paying off debt. Sure we have had a recession since, but the main reason the government's tax take is much lower these days is because they cut the top tax rate. Im not a fan of Labours socialist crap, but I think their fiscal policies (tax the rich and give to the poor) were much better than nationals (borrow from overseas and give to the poor)
Don't worry, almost all of NZ debt is in NZD. We can do a Bernanke and print our debt away. (But to do that we need a powerful Army!!!)
Actually jp I think it's the govt debt that is mostly in NZ$...not so sure about the private debt....and the point people miss is the duration of the govt debt...it is short enough to allow the creditors to react to our govt playing silly games with the kiwi$ ....debasement invites higher rates on future debt.
And you can bet the suppliers of the private debt to the banks will stay well ahead of the debasement....
The govt will not be able to balance the budget and produce a surplus without shrinking the state both in size and in the amount of money it sucks.
The households will not be able to save or spend more unless they have large income increases..highly unlikely...or until they have paid down a fair wack of their household debts....highly unlikely given the 100% chance of rates rising.
Figure the rest out for yourself.
or raise taxes....and no there is no guarantee rates will rise at least in the short term ie this year.....by 2013 and looking at 2015 and we are still not paid off, then yes I think our Govn bond rates will climb.
Until then get rid of debt....simple.
regards
Re. Jimbo Jones
Your comment "Yep the kids are going to have to pay for the well off to have tax cuts" is misinformed.
I suggest you look at the graphs of Govt spending over the last 10 years. During Labour's reign, Govt spending exploded on the back on unsustainable election bribes and a growth in wasteful spending on "entitlements" and big government. Particularly from 2003 when Queen Helen said to her man servant - go forth and secure my reign, fool those clueless serfs with bribes. Tax the middle class PAYE earner to the hilt and ignore the fact the revenues we are collecting are based on the largest, debt fueled binge in NZ's history.
I am interested in how much tax you pay Jimbo? The skilled PAYE earner already bear the brunt of the tax and on that basis the cuts to the income tax rates were a good idea.
Ture the rich to avoid taxes, but it is not through PAYE. It is through exempting our largest asset base, property, from the tax net.
All my income is PAYE and under national I pay a lot less tax than I used to. But I don't think that is what is best for NZ.
The gap between rich and poor is getting far too wide. There are people doing an honest 40 hour week that are getting paid a third of what I get for my 40 hour week. If we cut WFF it will just get worse. And those people won't have any money to spend so the economy will go to crap too.
Yes labour increased govt spending a lot with WFF etc but they could afford it because they had the top tax rate. National seems to think they can cut the tax, keep the entitlements, and make up for it with 'effeciencies'. Sorry but its not possible.
I agree that a land tax etc might be worthwhile. I think the govt is better off increasing their tax take than cutting entitlements.
Paying less tax is good for you JimboJones, paying more tax doesn't help NZ because it doesn't create any growth, it just changes who spends the money. The economy needs to grow so it can continue to meet it's debt obligations. The only possible outcome of reducing debt or debt growth is deflation (which makes it harder to pay off debt), the alternative isn't nice either.
Inflation and debt are the only friends you have in an economy that is based on fractional reserve banking.
Almost every civilisation comes to an end when the difference between the rich and poor gets too big. The fact is that as NZ gets richer (and despite you whingers I think we are), it is the skilled workers that get big pay rises while the non skilled workers get nothing. The only way to redistribute some of the wealth is through taxes. The whole theory that low taxes encourage growth and everyone is better off is just crap - only the rich end up better off.
Actually, I think the case can be made that most civilisations decay when they outrun their resource base. It is perhaps coincidental that the income split, by that stage of the game, has widened.
I suspect we are seeing now, what always happens in the end-game - the well-positioned try to maintain their relative superiority, and the poor get much poorer, while being joined in poverty by the middle of the bell-curve. In our society, that means the squeezing of the middle class.
I agree, I just don't think that the govt is going to redistribute 'wealth' (if you can call it that) to the poor. They use it subsidise business, ie. AMI, SCF, and lets not forget the national broadband scheme. The poor get a few scraps but little is done to actually alter their situation, high unemployment is good for business's because labour becomes cheaper.
lol wake up theres no difference the blue the red its a illusion and its doing what it is supposed to do...
Create a problem wait for a reaction offer a solution. Of coarse the solution comes from those creating the problem and that solution always ends up being totally different from what was proposed to the citizens. Its a con with an Agenda which dosnt include us!
The majority still stuck on the old political party paradigm even after its obvious its a load of old cobblers! The guilliable consumer, the ruling elites and bankers must laugh there arses off...at your expense!
FYI from reader. Interesting suggestion. Anyone for a debt ceiling here too?
When are New Zealanders going wake up and demand that the political elite have rules around how they operate. One area that should be quickly addressed is the level debt and this would best served via a debt limit as a percentage of GDP, with the only out being, wars (this does not mean in bed with US in the middle east etc) and natural disasters.
After all they have laws about how fast we can drive etc and now Medsafe stops me from importing a multi vitamin and minerals because it has 2000ius of vitamin D3.
cheers
Bernard
you'd have to use a better measure than GDP.
Something real.
There is already a debt ceiling, you know when you hit it because you can't borrow any more money, I think they hit the ceiling in Iceland.
What about also tying politicians salaries to % of GDP, that could provide a real incentive to encourage policies of growth.
GDP is a nonsense indicator... oh wait hang on...good idea...lol
Growth you actually know what that is?
Growth economics is another sea shanty to no where...not going to be happening as energy costs begin to escalate. In a growth enviroment you always need more of everything and well where in a world with less of everything being avaliable...
Remember the more you buy and chuck out constitutes growth and GDP! That temporary arrangement is fast ending....like it or not!
Well put. :)
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.