One of the world’s biggest credit rating agencies says as Government debt is already so low, increasing it by a few percentage points would be unlikely to impact NZ's overall credit rating

S&P Global Ratings says New Zealand’s credit rating is unlikely to shift if the Government takes on more debt.

Under its Budget Responsibility Rules, the Government promised to reduce net Crown Debt to 20% of GDP by 2021/22.

Finance Minister Grant Robertson’s commitment to those rules has come under pressure since the Government revealed it needs to reprioritise some of its spending at next month’s Budget to address issues with key public infrastructure.

Speaking to Interest.co.nz, S&P’s Primary New Zealand analyst Anthony Walker says sovereign debt levels make up just 10% of its overall credit rating.

In its most recent assessment, S&P affirmed its A-1+ ratings on New Zealand.

Moody’s rates New Zealand Aaa.

Walker says as New Zealand’s public debt levels are already so low, at roughly 23% of GDP, compared with its international peers, a 2% or 3% adjustment upwards would have very little impact on S&P's New Zealand sovereign rating because “there is ample room there at the moment.”

New Zealand GDP is $283 billion a year.

In fact, according to S&P’s assessment of the Government’s debt levels, which takes into consideration both central and local Government debt minus all liquid assets, net sovereign debt is sitting at just over 18% and is forecast to fall to 16% within the coming years.

Bagrie Economics chief economist Cameron Bagrie says the 20% debt reduction target is just “a number that’s been pulled out of the air.”

“Fiscal discipline is needed but it shouldn’t handicap policy decisions if they are good ones.”

He says the Government shouldn’t be afraid to loosen the purse strings and borrow a bit more if it is for sound economic reasons.

The argument for the Government borrowing more money to fund infrastructure projects has largely been made on the basis that with global interest rates so low, taking on debt is cheap.

After calling the Government’s Budget Responsibility Rules a “fiscal straitjacket” in February, Economist Shamubeel Eaqub said “…you’re a fiscal idiot if you don’t borrow money when interest rates are at the lowest level in a century.”

Robertson sticking to his guns

Robertson has maintained that the Government’s low debt level puts it in a better position to deal with an internal, or external economic shock.

The lower the debt level, Robertson says, the easier it will be to borrow money in the future in the event of a shock.

Despite Walker’s comments, the Finance Minister is refusing to budge.

He says the Government has “significant resources” at its disposal come Budget day to handle the infrastructure issues the Prime Minister outlined earlier in the week.

“We think it’s an important part of showing New Zealanders that we can be responsible with our finances while, at the same time, making the spending and the investments that are necessary.”

He says the Government won’t break its rules as it’s something both Labour and the Greens campaigned on.

Government debt

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61 Comments

How did this story come about? I hope Interest.co.nz isn't trying to make the news. It reads like it is. S&P surely aren't making press releases on the debt level impacts on their ratings and the Finance Minisiter didn't start it.

Hi, 

I rang an analyst and talk to him about sovereign debt levels - no press release. I then questioned the minister on what the S&P analyst said.

 

Economist Shamubeel Eaqub said “…you’re a fiscal idiot if you don’t borrow money when interest rates are at the lowest level in a century.”
Whaaat!!!
I would argue that you are a fiscal idiot if you borrow money when interest rates are poised to increase at an as yet unknown speed to an as yet unknown amount..
If you cannot pay down borrowings now you are NEVER going to be able to.
Additionally part of the reason the govt debt is "low" is that a buffer is needed in case another big earthquake strikes. And also to partially make up for the imprudence of the public.

Where is this inflation that is about to engulf us??? Where are these rising interest rates? Last time I looked mortgage rates were coming down..... We are in stagnant, deflationary times. That is the reality.

The NZ government can always pay its sovereign debt -unlike Greece, it owns the excel spreadsheet and keyboard that pays it off. It can also control the interest on bonds by direct reserve bank purchases if it chooses to - like Japan does and like most nations did prior to neo-liberal reforms.

NZ government parsimony sucks money out of the economy so that the private sector, to maintain living standards has to take out more debt. Simple example - student loans. What was once funded by government is now private debt. Note, government surpluses are associated with private sector deficits given an external deficit. If they tax us more than they spend, we the people are in deficit.

@cs: interesting comment. But can u pls elaborate?
I'm trying to educate myself in these topics
1. How's NZ different from Greece?
2. I too read about bank of Japan's purchase of govt bonds. But don't understand how it works. If RBNZ buys debt, what parameter take a hit? Exchange rate or OCR ?
Hope u see this comment and explain. Or anyone else can explain what he mean. Thanks

1. NZ can print NZ dollars. Greece cannot print Euros. Greece must borrow to spend. We can use overt monetary finance (as suggested by Bank of England's Adair Turner - not just crazy lefty me).
2. Basically Bank of Japan buys government bonds. It "prints money" and buys them. So the Japanese government owes itself. Like you printing money and lending it to yourself. You don't really need to pay yourself back do you? Exchange rate has not taken a hit in Japan (except in a slightlly good way to help exports). No massive inflation. In Japan OCR has been around 0% for last 10 years. Main parameter that might take a hit is buyers of bonds won't get their welfare payments (interest payments) or must endure low yields. Australia used to do the same i believe prior to neo-liberalism. Reserve Bank would just buy any outstanding bonds at set interest rate that private sector didn't want. US did this too during ww2 and for 10 years post war.
The central bank can pay interest on new reserves created through deficit spending if it needs to to control interest rate rather than using open market operations with bonds.
You should go and read about Modern Monetary Theory on Bill Mitchell's blog. He goes into government debt, Japan and all the crocs we've been fed (like high debt-to gdp means high interest rates - hello Japan???) crowding out etc. Much better than little old me can explain.

Thanks @cs.
I will read more thoroughly and google the keywords & try to make some sense out it. Much appreciated for explaining your point.

Excellent, this is all I need to know. Borrowing to fund maintenance on distressed infrastructure is no different than what housing investors need to do on their own houses! Besides, preserving our country's infrastructure is far more important than providing continued support of this nine year speculative nightmare.

Government debt is low. Why on earth the Coalition of Whingers complain is beyond me. Its them that are holding the biggest bag when it comes to debt and risk. It is they that have the biggest expectation of Government bailouts when it all goes wrong.

That's an interesting point - if government debt is already higher maybe there's not as much room to rescue private institutions by converting private debt to government debt, as the ECB forced Ireland to do. Using the taxpayer to bail out the risk-takers.

I agree. There needs to be room for Government to provide stimulus in times when the private sector cant. I point out the same group of COW's debt junkies would repeatedly argue house prices will never collapse. Its interesting they're NOW concerned about any increase in Government debt.

In a scenario of elevated public and private debt at the same time as a downturn, I guess we all should be worried.

It's imperative we preserve our Government debt credit rating.

Good to see you've bought into the use of perjorative terms. It's an indication the opposition niggle is impacting on the COL supporters. Keep it up.

I can't lay claim to that. It was creative beachcombing off Trademe.

Ex Expat, can you do more than just niggle? Surely, you're better than that! Try re-energizing, come in from the wilderness and save yourself. Get behind a Government with a plan of action. It's the best road to sustainable and balanced prosperity our country has had in a long time ;-)

If you believe the COL are the way forward then in my household you'd be labelled delusional. The fact that you identify as retired at 52 tells me a lot. My Righty mates who could retire keep on contributing. It must be different on your side of the political divide.

Actually, at the end of the day, I think most New Zealanders would disagree with you there, and that is bourne out by the recent election results.

The COL sure don't act like they have a solid mandate and they are right, they don't. This can turn on a dime and the opposition is ready and waiting to point out every slip and foible.

Hah! National are like a punctured balloon.

Maybe if ya mate Chong Kee didn't retire from politics at 56 your side of the political divide would still be running this place...

Delusional, is a very polite description ....
Can't straighten a dog's tail and cannot stop it from wagging either.

Ex Expat, says "The fact that you identify as retired at 52 tells me a lot"

Hmmmmm, your jealousy is noted. Like you, I have also paid much in waisted tax contributions up until when the Coalition took control. Now, I still pay taxes although, possibly not as much as you ;-)

Who knows, maybe one day you'll get to experience the life of a person who is actually happy with their lot. Your continued whining says you're far from it!

You may be happy with your 'lot' but that doesn't help move the country forward. Why not earn another $70,000 a year, pay your share to Taxinda, then give the rest away? Isn't the COL utopia to have everyone contribute to the common good to the limit of their ability? By resting on whatever laurels you have you are not doing your part.

Big yawn..Is THIS all you can come up with to explain away your envy? Que Image, Ex Expat at 80 years, nervously weaving his bicycle through peak hour traffic on his way to work. Cause of Auckland's gridlock? Ex Expat. At 80 years is he happy with his lot? - NOPE

Ex Pat ..the fact that you quote someones age in a rebuttal indicates your inability to deal with argument. The fact you are surrounded in a household of echo chambers add no weight to your points either. You need to learn how to express youself without such 'noise'.

ExExPat....methinks it is a house of mirrors...

As right as right can be, and am happily retired at 48....and don't feel an ounce of guilt about it - and neither does anyone else I know in the same boat.

....early retirement frees up a job vacancy for someone else :) Ex Expat's argument for reduced productivity is a complete croc, I wasn't a Brain Surgeon.

What happens when a rock meets a hard place?

Throughout the GFC what has hurt us (as a global economy) has been the private debt level yet the blame is dumped on the socialist system, "it costs too much".

What I have been following with interest are the few cases where (NZ) has not bailed out an entity much to the dismay of the banks who lent to it , talk about moral hazard from the right wing.

So back to the rock and hard place, when this ponzi scheme implodes and it will what to do? The social costs of the Govn not bailing the losers out looks horrendous as those lossers losing their shirts sees the impacts flow onto the "innocents" (ie the ones who didnt directly gamble on ever increasing capital values).

So here we can ask should the Govn bailout bad banks & entities? does it have any choice? can it even do so?

If it does not, the economy collapses, the saved lose their incomes, spending nose dives as does the Govn's tax revenue. Potentially then its one huge "death" spiral. For me the Q I want an answer to is, have our Govn and RB thought this through and do they have a plan to fall back on rather than act like headless chickens?

I kind of suspect that the latter is the safest course for Govn and bureaucrats to follow, then they can say "this it totally un-expected and we just couldnt conceive an event this big and severe" and we like lambs will accept that, more fool us IMHO.

Makes me wonder - surely a better option for the country would be for the government, rather than taking that private debt onto the taxpayer, borrow a lesser amount and invest it directly into the country, more productively stepping in for the reduction in private investment during the collapse of private debt.

What might Ireland's experience of domestic productivity and employment have been if they'd done that instead of simply bailing out private risk-takers?

Essential financial management requires that everyone should be financially prepared for unexpected events.

1) For individuals and households, this means having an emergency fund of cash in the bank to cover unexpected expenses or loss of income.
2) For businesses, this means having cash in the bank to cover unexpected expenses, reduction in revenues, or an economic downturn
3) For governments, it means having excess borrowing capacity so that they can continue to access capital markets in order to finance fiscal stimulus when the economy is in an economic downturn and not be over leveraged.

The issue for many governments in democracies however is that the elected individuals making the decisions are highly motivated by the next election cycle and being re-elected and are willing to spend now to get re-elected and kick the can down the road later, and leave the government's financial problems to some other future generation of politician -.Greece is a country that springs to mind here, where the government policies of prior governments allowed overpaid civil servants, early and generous retirement pensions for citizens and other areas of fiscal mismanagement.

Ireland practiced fiscal prudence with low debt to GDP levels, and then needed to inject capital into their banks in 2008/2009 which resulted in a higher government debt to GDP ratio. The Irish banks got into financial trouble due to their lax lending which created the property bubble in Ireland, which subsequently went bust. The capital markets were unwilling to finance the Irish government and the other nations of Europe had to lend to them, until the Irish government had access to capital markets.

Ireland can't print Euros. NZ as a sovereign currency issuer is more like the US, UK Japan or Australia. It can use the Reserve Bank and QE (keystrokes in Excel) to bail out distressed banks by purchasing failing assets for reserves.
NZ government does not have to borrow money or tax you or I to bail out failing banks.
However, this does not mean that finance sector shouldn't be highly regulated. It should. Given the too big to fail issue - even more so.

Whether or not borrowing more will affect NZ's credit rating is not really the point.

The key point is that, in order to be able to signal virtue, Labour made it a central plank of their manifesto that they would reduce debt to GDP to 20% by 2021/22.

Backing away from that now - unless there is another GFC or earthquakes - would simply mean that nothing they say or said could be trusted.

"I promised to spend less than I tax away from you and god damn it - even if it means child poverty and moldy hospitals - I swear I will keep that promise! (and keep you ignorant about the nature of public debt because I assume you are to dumb to understand)."

Sounds like a bum deal to the NZ public to me.We may be like turkeys voting for Christmas with the public debt hysteria - but I have faith that even turkeys can understand that Christmas is not such a great concept for them. And if shown a few graphs and international comparisons I think NZers aren't too dumb to understand.

To retain credibility, the CoL should just come clean about why it wants to jack up spending above what is promised in the election. It does not seem credible at all that hospitals and schools are falling apart and need all this extra money for CAPEX (capital expenditure). What is far more likely is Labour wants to pay off its voters e.g. nurses with pay rises and teachers with pay rises etc...

These type of costs, have a much bigger impact on long term budgets, as pay rises lift budgets every year going forward, where capital repairs are more one-off. Come on Labour don't spin us. Tell us exactly where you want to spend extra money and why you want to break your promise. Blaming the old regime is a low tactic.

Is this COL outfit you mention some sort of vendor of fried chicken? Or do you mean the Government?

coalition government I meant, have just adopted the abbreviation others used on here for it

Coalition of Losers - it's an accurate and reasonable title.

It's the government, but it is still a coalition of losers, i.e. the parties that came 2nd, 3rd and 4th, including the 3rd and 4th placed parties whose candidates were trounced in every electorate they stood in.

ouch. That's a bit harsh. Didn't realise that acronym meant that.

Maybe you and National need learn more about how MMP works...it is like a season long championship.
Winning individual games means nothing if you don't have enough points at the end.
Reality is,the winner is the group who negotiate best and combine to have the numbers...it appears the Nats had themselves and David Seymour...you can spin it any way you want,the only loser at the last election was the National Party.Take all political bias leanings out of it...that is the facts.

I acknowledged they are the government, but it doesn't make them any less of a Coalition of Losers.

Well done on moving past the first stage of grief - denial.

Others using that term here have still not got there yet and still feel their team were somehow the winners of the election.

COL supporters just don't get it. Opposition is getting more vocal, not less. This isn't a seven stages scenario.

Too be fair,most of the vocal ones are merely insignificant keyboard warriors who carry no weight or power or influence.
I haven't actually heard much from Mr Bridges and his mum Paula...

A few folk are getting a bit more shrill, that's for sure. I'm watching with curiousity to see whether Simon Lusk et al are leading NZ's traditionally fairly sensible centre-Right toward going full Tea Party, as happened in the USA: https://www.youtube.com/watch?v=pdVl3WvgJ50

Diverging from the centre is political death. That's why Taxinda is being so cautious. I wish she would have the comrade of her convictions and go further left, announce some more new taxes etc. Otherwise we are doomed to years of political whack a mole on this site.

Jeez, why can't some people face reality? The term coalition of losers can only be applied to National, Act and Maori Party as they failed to form a government as they lost the election.

By definition COL can only = National, ACT, Maori party.

I'm sorry it hurts but it's time to stop going on and on whinging about it.

You just couldn't resist eh? The more you mention it, the more it works in my opinion. There is no Punch without Judy.

where as Nationals 4 way coallition with Maori, United, and ACT, they weren't losers? Yet winston and the greens are?

I always read it as Centre of Left. Same as Left of Centre, or CentreLeft

And so what if they did spend on public sector wages over capital expenditure? You can teach a class in a shack but you can't teach a class if there's no teacher. Right now we face a big crisis in teaching - wages need to increase to keep warm bodies in front of our kids.

The preference for capital expenditure over nurses and teacher wages is a very gendered thing - politician's love wearing hard hats and announcing big masculine infrastructure projects. That kind of spending is okay even for hawks. But woe betide increasing public sector (female) wages. That is a waste of money even though the human resource is more important than the "infrastructure" in many cases.

That said, the Coalition government should be spending more on both.

you may be right cs that they should spend more on wages for nurses, teachers etc. My point is it would be nice for them just to be honest about it, rather than cooking up this brew of mould in the walls and the like

Read this article and be honest if you swapped the name Key for Robertson,2010 for 2018 whats the bet everyone would be jumping up and down.
http://www.stuff.co.nz/national/politics/3307911/Key-confirms-GST-increa...
and JK's flip flop in this article
http://www.newshub.co.nz/general/key-denies-flip-flop-over-gst-increase-...
Lots of familiar terms in this article..."a central recommendation of the tax working group set up to find ways to rebalance the tax system."",
..."Mr Key also left open the prospect of ending the ability of investors to write off losses on property against other income."

This CoL will remain just that, whether defined by results on election night or by competence and behaviour in the last 6+ months ....Everyone can now see they are floundering like noobs on a new job and they are struggling to keep to their stupid promises when everyone told them that from the start.

The Left wanted power so badly because they wanted to satisfy a certain portion of society that they believed was left behind. Fair enough

While that is true and undeniable, regardless of reasons, the way they are approaching this noble intention is only based on their ideology and robbing Peter to pay Paul methodology. Or robbing both to justify silly big mouth promises.

MMP is not a perfect system and our current combination is a real example of one of its deficiencies .

Obviously every one of these Loser Parties has its own supporters to please with all sorts of weird promises and ideas - so the CoL's soup du jour cannot expected to be anything but a dog's breakfast .... Today, tomorrow and until 2020.

They won't come clean and admit they've made the wrong calc and judgment call about the operational expenses part of their budget as been altered to by BE and SJ ... they won't admit to the $11B+ hole because it will hurt their pride and image and expose their incompetence.

However, they are softening the public, as all polys do, through a set of articles and interviews floating the idea of increasing borrowing etc to save some face when doing that later. So bring in the media and the democratic press to help:
http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=12...

Creating a controversial debate is part of softening the sheeples ... then due to popular demand they will borrow to pay nurses, teachers, police, and sundry in addition to satisfying the trade Unions and building uneconomical light rail to A/port and other stupid cycleways or create congestions on roads just to please the other Losers to mention a few ... while they shoot everyone in the foot by banning future income to the country ( like oil exploration} !

This is how clever these noobs are, and this is the result of bringing in radical bush dwellers' ideas to government through coalition agreement blackmailing ... the Ends justify the Means eh?

It appears that spending 400K on a road investigation, or similar amounts on some stupid committees is more important than reducing child poverty. ... because apparently that can wait , if they solve child poverty too soon they won't have much to moan about in future !

Edit: 3:30pm
It looks like more and more drums are being beaten to show support for the next CoL shoe to drop ( budget rules) ...funny that names like BH and SE are being repeatedly mentioned as if they are the economic gurus of this century ... Yes the same light weight
economists who are just talk and no substance ....
this FISH is rotten and it is stinking bad... WP is no where to be seen either !! ....http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=12...

There is a noticeable media campaign to put Jacinda's pictures, videos and articles all over the media again - the approval barometer does not look good and more people are disgusted by the performance ... we are back to campaign mode again.

Media beating and softening of the populous is even worse that trucking hundreds of Green and Labour supporters for the PM speech today about oil and gas decision ... that really stinks -- were they afraid that very little students will show up at Victoria Uni for Taxenda?

Echo Bird, goodness me. Only you can spray twaddlecock across so many lines and paragraphs ;-)

I am so glad that you are reading it all

Echo Bird, no offence but I didn't get far at all before I wondered if you'd received a knock to the head you weren't aware off.

The only ppl receiving a knock on the head are your mates in the CoL

This tragedia circus has gone from funny to hilarious ... watch the space and dont cry too much ...

Heaven forbid these clowns decide to pay bludgers like nurses,teachers and police a wage that allows them to live in our countries biggest city...

I'm looking forward to Northcote by-election, and at least one more from another leaving National seat MP.... Referendum on the Opposition...?

It’s history repeating itself again, Labour puts the country into debt and National then spends its term getting the country out of debt.

Completely empirically inaccurate statement. Cullen left NZ with very low public debt. English increased it - rightly so given GFC and earthquake - and now Labour are vowing to reduce it (stupidly).

It amazes me how people can make fake statements with absolutely no basis in reality.

People don't seem to get that deficits and public debt are largely endogenous. They expand in bad times due to increased welfare payments and improve in good times (more taxes coming in). In NZ we have a discretionary surplus I believe - we run things too tight on average - but cyclical deficits will occur whatever party is in power unless we decide to scrap the unemployment benefit (and cause civil chaos).

Check out this graph and click on "max" if you don't believe me.https://tradingeconomics.com/new-zealand/government-debt-to-gdp