Have your say: How should English control public debt?
19th Dec 08, 10:12am
Treasury forecasts issued to Finance Minister Bill English this week predicted New Zealand's gross debt could rise as high as 38.6% of GDP by 2013 from 17.5% in 2008. Unemployment was forecast to rise as high as 7.2% in 2010 and the budget deficit as high as 4.5% of GDP in 2011. "While New Zealand has one of the lowest levels of government gross debt and net debt in the OECD, the Treasury forecasts show that the government will have to take action to bring debt levels back under control," English said. "The government is committed to a range of effective policy responses to ensure the worst-case scenarios for debt and deficits will not happen." "This would include putting the economy on a strong medium to long-term footing, limiting spending growth, getting better value out of existing spending, ensuring that tax bases were maintained, and ensuring that government assets were managed as effectively as possible." "Cuts to government expenditure in an attempt to balance the books, and which have a substantial impact on demand, would simply push the economy deeper into recession." "Our current focus is setting in place a plan to manage the New Zealand economy through the global economic turmoil. This will ensure that New Zealanders are as strongly placed as possible to take advantage of better economic times when they come along." What I think We currently have a household foreign debt problem via our banks. The huge public sector borrowing implied by this forecast track will have to be done with foreign savings. Can we really afford to have a household debt problem and a government debt problem at the same time? Bill English is right to say this forecast track cannot be allowed to happen. It would threaten our credit rating and potentially create a whole new load of debt for our children and grandchildren to repay. But he's also right to say now is the wrong time to be slashing government spending or raising taxes. We're in a recession that requires a government stimulus. But the one we have now is enough. For the next year or two the government should restrain non-infrastructure spending and do everything it can to ensure the economic growth rebound is strong. The more time is spends cutting government costs, fees and charges the better. Then it has to make some fundamental choices about the size and efficiency of government. Resources need to be freed up to create wealth rather than distribute it. What do you think? How should the new government handle the issue of rising public debt? Should it bother?Should it wait until the recession is over? Should the government start selling off assets? Should it raise taxes? Should it cut government spending and, if so, which spending should it cut? Comments below please