ANZ economists say a 'realistic guess' is that the Government will lift its net debt to about 23% of GDP, from the current 20%, by the year 2022

ANZ economists say a 'realistic guess' is that the Government will lift its net debt to about 23% of GDP, from the current 20%, by the year 2022

ANZ economists say the Government could "comfortably" bump up its spending by $5 billion to $15 billion when it releases its Half Year Economic and Fiscal Update (HYEFU) next week.

But they do say, however, that the Government might want to "hold something back" for next year's Budget and the election.

Finance Minister Grant Robertson has signalled a major spend-up on infrastructure and is loosening its fiscal straightjacket

In a preview of the HYEFU next Wednesday (December 11), ANZ senior economist Miles Workman says the decision to loosen the purse strings comes as no surprise "and is something we thought would happen eventually (particularly in the lead-up to the 2020 election)".

"Years of under-investment in key infrastructure means there’s plenty to get on with. But while some may argue that the Government hasn’t gone far enough, current economic conditions (ie capacity constraints) suggest it’s going to be a challenge implementing additional capex in a hurry.

"Infrastructure spending takes time, so if downside risks to the outlook materialise, the fiscal response will need to go a further."

He says while the "fiscal bump" may be coming a little too late for the Reserve Bank's liking [the central bank has been calling for fiscal stimulus to help the economy],  "this is what the economy has been crying out for for a long time". 

Workman says long lag times for infrastructure spending and typical delays mean it will be difficult for the Government to ramp up capital spending in the current fiscal year (to June 2020), "so we wouldn’t expect to see a significant bump at least until 2021".

"Further, we think it’s unlikely that the Government will push the limits of the 15%-25% debt window for fear of a breach.

"Perhaps a more realistic guess (note: forecasting political decisions is a mug’s game) is that net debt will be allowed to lift to around 23% of GDP by 2022, and maintained around that level thereafter."

This implied a possible increase in spending in the $10-15 billion range, Workman said.

"That said, the Government may want to hold something sweet back for the Budget 2020 and next year’s election, meaning an increase closer to $5 billion is arguably just as likely. It really comes down to your interpretation of ‘significant’.

"Nonetheless, a lift in spending by $5 billion or more will certainly give nominal GDP growth a decent bump (eg a $1 billion lift in Government spending over the year to June 2019 would have added 0.35%pts to annual nominal GDP growth).

"However, as a rule of thumb, for every 1% the nominal economy has grown over the past 30 years, the real economy has grown about 0.6%. Based on this, an extra $10 billion in spending over the next five years could bump up real GDP growth by around 0.3-0.5%pts, but the profile of the extra spending is what really matters for growth and we won’t know that until HYEFU day."

In terms of how the Government's current debt position is tracking, Workman said while it is true that net debt came in below 20% of GDP in both the 2018 and 2019 fiscal years, it was at 20.2% in the first four months of the current (2020) fiscal year, and based on 2019 Budget and Economic Forecast Update (BEFU) forecasts and the "washing out of positive one-off factors", this was poised to rise in the near term before any additional spending is factored in.

"In fact, if the Treasury’s economic outlook were downgraded sufficiently, it is possible debt would be forecast to come in above 20% in 2022 anyway.

"So to some extent, the signalled fiscal ‘loosening’ could partly be a result of not having to tighten fiscal policy just to show the forecasts achieving the 20% point target."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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How about using some of it to buy stakes in the Big Four Banks to better control them and earn dividends ?

Labour???

Modernizing our national infrastructure through targeted public funding would help diversify NZ away from the current asset-based economy to a knowledge-driven one.
Hopefully, then you'd have more institutional & retail exploring productive investment potential instead of borrowing from these 'devilish' banks to gamble on our property markets.

In terms of how the Government's current debt position is tracking, Workman said while it is true that net debt came in below 20% of GDP in both the 2018 and 2019 fiscal years, it was at 20.2% in the first four months of the current (2020) fiscal year, and based on 2019 Budget and Economic Forecast Update (BEFU) forecasts and the "washing out of positive one-off factors", this was poised to rise in the near term before any additional spending is factored in.

Let's get real and disclose the off-balance liabilities to give the voter a clearer picture where his/her taxes must be applied and to determine whether debt rollover is the ongoing option or potential redemption in a 20 year horizon is at all possible.

Real talk though, can you tell us what they are? The information is public.

Public Private Partnerships that are in essence lease to buy arrangements, with the rents paid far exceeding the risks associated with the government business. It would take a very strong argue to justify the rents paid, given the crown can borrow for alot less than these private investment partners.

Can anyone point me to a ppp that has worked for the government? Theres normally costs over runs and delays; not unlike other exclusvie government projects, but in these cases the private investors wins all the way.

'But they do say, however, that the Government might want to "hold something back" for next year's Budget and the election.'

I think that would be a mistake. They need to commit now, not come out with election promises when they have been know to break many of them. The electorate have become cynical of their election promises.

Don't worry, every time an adverse poll comes out, we'll a sudden, previously-unannounced piece of high profile reform, say, minor foreign political donations, that achieves nothing and isn't designed to do anything other than deflect attention away from what foundation accepted what from who on what basis or where all those light rail business case studies got to or .

Also, 'infrastructure' doesn't just have to mean roads and rail. It can also be 'social infrastructure' - housing, schools, hospitals. These will deliver quicker economic wins than road and rail, and are also bigger political brownie points for a Labour government where the focus is always on 'the social'.

... infrastructure can also include electrical services , communications , ports and airports ...

Mainstream economists, predominantly Nobel Prize-winners Paul Krugman, formerly of Princeton University and now at the city University of New York, and Joseph Stiglitz of Columbia University, were scathing in their attacks on Reinhart and Rogoff. They claimed the failure to use more fiscal stimulus, really deficit spending, would not only hurt growth in the short term, but would lead to long term losses as temporary unemployment segued into structural unemployment due to lost skills and lost connections in the workplace. From Aftermath by Jim Rickards

NZ has very outdated infrastructure. Just ask an immigrant from Germany, UK or North America what they think of our infrastructure and you'll hear all about it, fir hours. On recycling alone we could spend billions doing the things we needed to do decades back like tyre recycling plants, plastic recycling plants and incinerators that generate energy.

you will find outdated infrastructure in all of the countries that you have mentioned as well as NZ

Borrow and spend in election year. Standard stupidity and negligent abuse of the taxpayers.

BEWARE RANT: The standard delivery of western governments, especially in relation to their promises to get elected, in the early 21st Century is absolutely appalling. The abject failure of not only this current government, but many, many other governments of all persuasions, & within the wider western community, reminds me a bit of daylight robbery without any consequences. Sadly, this is par for what passes for enlightened democracy in today's socially divided, often sick & family failing world. Whilst we're quick to show & tell about our latest technological addendum to our busy & bustling lives, we neglect to remember that we're so busy going to & fro & being involved with stuff that is so important (not) that we've hardly any time left for those things that really matter, & actually mean something, at the end of the day (ie: the key relationships in our lives) that we forget what's really important inside the hustle & bustle of our daily existence.
We have replaced quality with quantity, love for lust, friends for phones & children with pets.
To compensate we import others to fill the gaping holes within our fading democracies whilst fundamentally changing our culture & society, for better & for worse, without so much as a decent discussion about why or how or where to from here. As a culture we have abdicated our individual rights to state run organisations that wouldn't know the way up to get out of anything if they tried. Such is the low standard of the state apparatus currently operating (serving?) in not only this country but many other similar ones, that to expect any justice from anyone for what commonly passes as any sort of decent living, is becoming a rare thing indeed. So rare, that most people now expect the worst, for fear of having too higher expectations, as their relationship with mediocrities are now so common, as to be the default setting for a great many of us. This doesn't end that well as some of you well know. Those who read history will recognise the symptoms as end of age for many a great culture over the course of time, only to realise that no one will listen to anything anyone old enough to know better will say (implore perhaps) as we finally understand that the children are now in charge of the planet, and for better & worse, & that is just how life goes. Sigh!!!