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Pressure on Robertson to borrow more to stimulate the economy mounts, as debt gets cheaper, the effectiveness of interest rate cuts diminishes, and credit rating agencies remain happy

Pressure on Robertson to borrow more to stimulate the economy mounts, as debt gets cheaper, the effectiveness of interest rate cuts diminishes, and credit rating agencies remain happy
Finance Minister Grant Robertson.

By Jenée Tibshraeny

Finance Minister Grant Robertson is under renewed pressure to borrow more to plug New Zealand’s infrastructure deficit, as the cost of borrowing continues to fall.

Government 10-year bond yields dropped to a record-low of 1.72% on March 28, following the Reserve Bank (RBNZ) the previous day changing its tune and announcing the next move of the Official Cash Rate (OCR) would most likely be down. They’ve now bounced back, somewhat, to 2.04% at the time of writing.

The International Monetary Fund’s (IMF) head and Kiwibank’s chief economist are among those who believe loosened monetary policy (central banks cutting interest rates) has done a lot to spur economic growth since the 2008 global financial crisis, and in some economies it’s time for fiscal policy (government spending) to do a bit more.

The credit rating agencies continue to say the Government can take out a lot more debt before its ratings are affected.

But Robertson remains fixated on flying his prudence flag and reducing government debt in line with his budget responsibility rules; Cabinet on Monday signing off on his 2019 budget, to be released on May 30.

He last week largely dodged a question in an RNZ interview about the IMF’s warnings around the effectiveness of cutting interest rates when they’re already at record lows.

“Monetary and fiscal policy do need to support each other,” Robertson said.

The limits of monetary policy

The IMF chief Christine Lagarde earlier in the month said countries that were in fiscal surplus should “certainly make use of it” and invest to grow their economies.

“Not enough has been done on that front,” she said.

The IMF’s Asia Pacific deputy director, Jonathan Ostry, also commented on New Zealand having “considerable policy space” to manage economic risks “both through monetary easing and providing further fiscal stimulus”.

He noted the infrastructure spending boost overseen by the Coalition Government “could come on-stream slower than we hope”.

Kiwibank chief economist, Jarrod Kerr, just over a week ago told “Normally when you see interest rates drop this low, governments come out and start building and expanding and taking over the reins and saying; 'Right if we are going to have a healthy, productive, high growing economy, we need to start building some stuff now for 10, 20 years down the track.'

“And we just haven't seen it.

“We're trying in New Zealand, but we haven't done enough. And I think that's the disappointment globally, is that monetary policy has done everything it can and fiscal policy hasn't done much."

In a separate interview, he talked about the diminishing returns delivered by each OCR cut from the low base it’s already at. He believed there was considerable fuel in the tank, but warned each cut would become relatively less effective.

He also questioned the extent to which a lower OCR would address the headwinds, especially around government policy-induced low business confidence, facing the New Zealand economy.

‘Ample room to pursue expansionary fiscal policy’

So how much could the Government borrow before the credit rating agencies start getting nervous?

Standard & Poor’s director of sovereign and international public finance, Anthony Walker, told net Crown debt could technically increase to 30% of GDP, from where it’s at now at around 20%. But the effect this could have on credit ratings would depend on what else was happening in the economy.

“The debt levels aren’t our concern at the moment. There’s headroom there for them to borrow. It just depends how they do it,” he said.

“If the economy starts to slow, that lowers GDP per capita. That might also hit the Budget at the same time debt starts to rise, because it’s all intertwined."

Walker said there was more upside than downside to New Zealand’s ratings, with there being a one in three chance of an upgrade in the next two years.

Moody’s lead sovereign analyst for New Zealand, Matthew Circosta, said: “The government’s efforts over several years to preserve strong public finances gives the Government ample room to pursue expansionary fiscal policy to buffer the economy from any potential shock that may arise in the future.

“When we look at the fiscal profile of the New Zealand Government, we see very strong public finances and significant fiscal flexibility which provides the Government ample room to pursue expansionary fiscal policy, if required.” (Detail on NZ's sovereign credit ratings is here).

Risk of getting too loose

Looking at the issue from a different perspective, foreign exchange specialist and Barrington Treasury Services chair, Roger Kerr, is concerned about the RBNZ cutting interest rates as the Government spends more.

“It is a very brave (or mis-guided) central bank that would significantly loosen monetary policy at the same time fiscal policy is also very loose to stimulate economic activity, spending and investment,” he wrote in a column for

“Only major global economic catastrophes and crisis like the 2009 GFC (when world trade stopped) would justify the dual economic stimuli concurrently.

“We are certainly not in that same situation today with the NZ and global economy…

“The danger of loose/loose monetary and fiscal policies working in tandem is inflation running away as demand exceeds supply across the economy.”

NZ Government bond rates

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Source: RBNZ
The 'Govt bond 5 yrs %' chart will be drawn here.
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Source: RBNZ
The 'Govt bond 2 yrs %' chart will be drawn here.
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Source: RBNZ
The 'Govt bond 1 yr %' chart will be drawn here.
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Source: RBNZ

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I have thought for a while now that we should borrow significantly for infrastructure projects - maybe $100b over 10 to 20 years. There are a lot of large projects around the country that could be bought forward that would benefit the country long terms as well as boast the economy now. However, we first need an agency that can plan and deliver the spending properly. In addition, it appears the construction industry is in trouble so need to sort that out. I fear though no government is brave enough to do it.

The government recently announced the setup of a new agency, Infrastructure Commission, which will work with local councils, other central agencies and the private sector to develop a 30-year infrastructure strategy.

I am probably thinking more of a sovereign wealth fund akin to the Super Fund.


Why don't we borrow from ourselves? Kiwis have a lot of money in deposit accounts,so why not have an Infrastructure Bond paying around the same? Not only would this provide much needed capital for long-term infrastructure-and $100bn doesn't seem too fanciful,but it would not increase our overseas indebtedness and with no deposit guarantees unlike all other countries,it would give bondholders a government guarantee.

Cut OCR to increase private borrowing to stimulate growth or loosen fiscal policy to spend on infrastructure to stimulate growth? We will pay either way but atleast with the second option we will have something more helpful/productive than increased house and asset prices.

I wonder if the govt are keeping fiscal stimulus up their sleeve in the event things get really dire?

Which would be sensible. The only time to run a deficit is when things go bad, recession etc, and the rest of the time you run a surplus so you can safely run that deficit only when it's really needed. But that would be like running a sensible business. We're lucky NZ so far has done this...

It's all very well to advise borrowing up large whilst the tax take is strong and the economy is still in expansion mode. What if a global financial catastrophe sent our Government's tax take and GDP into reverse. Surely then the capacity to borrow would be smaller at a time when it's needed the most! By world standards, our private debt is high and our Government debt is low. If both were high, that is when foreign investors would have good reason to feel skittish. There is limited fiscal headroom to kickstart major projects so as to keep people in jobs. Save it for a REAL rainy day.


Major world economies are overloaded with debt. Future world growth rates will be low.
Ahead of any other spending the government needs to refill the EQC fund & contribute to the superfund.
If we get to the point of going negative on the OCR then the government can bring out the fiscal stimulus.

Agreed, we haven't seen jobless rates kick up, so there is no need for a fiscal spend at this stage.

You do realise that when the government runs a surplus, by definition the private sector runs a deficit. High private debt is the result of the government surplus. To sustain spending levels - and keep the government in surpluses - Kiwis have to go into ever increasing debt. Sectoral balances.

G-T=S-I - (X-M)

Given a stable current account balance (deficit) with foreigners net saving, the government running a surplus (taxing too much and not spending enough) requires the Kiwi private sector to go into debt to sustain national income at current levels. When Kiwis stop doing this debt binge spending you will have a slowdown and a recession.

Look at the US. Whenever it attempts to run a government surplus a recession follows smartly. Most countries like NZ with stable CADs should be running sensible government deficits to allow the private domestic sector to net save and not go into dangerous private debt. The US Repubblicans have worked out MMT. They just won't admit it.

It'd be nice if they finished some of the projects under way when they came to power. Road building has basically stopped in Tauranga as NZTA is re-set to the Head Office days of the 1970's. These projects, well under way a long while before the CoL arrived, have stalled in mid-stream leaving sand & earthworks, cones & idle machinery on site for everyone to see. There's half a hill sitting opposite Bayfair which looks like a giant sand hill. Come on CoL do something. Anything, just something.

None of the commentary here reflects any real insight into challenges the Govt faces. Yes infrastructure has been neglected and needs to be brought up to speed. Things like the rail network udated to enable Kiwirail to take more freight off the roads, and this will require the trucking companies to pay more of their share of the damage they cause to the roading networks. The roading network needs to be updated every where to improve the quality. But all this is just superficial, the real challenge the Govt faces is creating real, substantial, secure and long lasting jobs for everyone everywhere.

This will mean suppport new technology based, and other, industries to supply NZ and provide an export income. The potential of a looming recession will offer both challenges and opportunities. It will also mean limiting foreign companies and powers from coming in and buying up the business to ship it somewhere else, as has happened too many times before. These challenges can be addressed through tax breaks, although some of this will be recovered by the creation of jobs, as well as grants to support business's as well as R&D. Where R&D is funded by Government, it should be on the proviso that it (the product of it) is not sold overseas, but must be used in NZ. Huge challenges, with the true benfits a loooong way down the line, but not impossible.


Governments can do many things to help the economy,but Not the creation of 'substantial,secure and long-lasting jobs'. Governments can create an environment through fiscal and monetary policy and also through its social and environmental policies,which make it easier for private industry to blossom.but governments are lousy at direct job creation.
as a Social Democrat,i firmly believe in a mixed economy,with governments setting-and enforcing-strong social and environmental policies,while encouraging responsible companies to thrive.