sign uplog in
Want to go ad-free? Find out how, here.

Finance Minister Joyce announces new govt net debt target of 10-15% by 2025, announces increase in new capital infrastructure spending over next four Budgets

Finance Minister Joyce announces new govt net debt target of 10-15% by 2025, announces increase in new capital infrastructure spending over next four Budgets

National has announced a new government debt target over the next eight years, and increased expected capital infrastructure spending in the next four Budgets, partly driven by costs stemming from the Kaikoura earthquakes.

Finance Minister Steven Joyce announced the measures in a pre-Budget speech to the Wellington Chamber of Commerce Thursday, in his first set-piece speech ahead of the 25 May Budget.

National will target net debt of 10-15% of GDP by 2025, Joyce announced.

“We have made great progress in our immediate target of reducing net debt to around 20% of GDP by 2020,” he said.

“Net debt is expected to be at 24.3% of GDP by the end of this financial year. Now it’s time to set a new target for net debt out to the middle of the next decade.

“We have learnt from the Global Financial Crisis and the Canterbury earthquakes that shocks can come along at any time, and sometimes they come in pairs.”

‘Shock absorber’

The primary driver for announcing the new debt target was to position the government's books to be able to absorb shocks similar to the Global Financial Crisis and the Canterbury earthquakes, Joyce told media after his speech.

“If you’ve got lower debt, particularly if you’ve got a couple of major shocks, then you are going to be dealing with a better interest rate profile than if you’ve already got significant debt before you get started,” he said.

“I just don’t think we’re in a position to sit there and say, ‘oh yeah, it probably won’t come along again for a while’. I think it’s a reasonably dangerous approach to take in a country like New Zealand. We’ve just got to progressively get to a point where we could do something similar again.”

While New Zealand is not likely to be faced with the twin costs of a global crisis and earthquakes at the same time again, Joyce said there were other scenarios, such as a major earthquake hitting Wellington, that could cost a future government “a lot of money.”

Asked whether the government had considered keeping the 20% target and instead using the extra money to invest in infrastructure, Joyce said there will be an opportunity to make those investments alongside the new proposed target.

“You have to get to a point where you have that capacity to respond. And I’d much prefer to have net debt of 10-15% if the balloon went up in a way that it did in Christchurch and the GFC, than be sitting at 20% and having the same experience," he said.

“With a small country you don’t get the same capacity to borrow at the same rate as if you’re a really big country. That has impacts on your credit ratings, it has impacts on your interest rates and you have overseas debtors telling you what you want to.”

Ratings agency Moody’s had said recently that while they were happy with New Zealand’s situation at the moment, “they did indicate some of the risks that they’d be worried about if they happened."

“This is all about managing the risk, it’s about resilience, it’s about not spending everything you get today, today, and setting aside, as a country, that capacity for the future," he said.

Cullen Fund

Meanwhile, the government’s intention of resuming contributions to the Cullen Fund when net debt hit 20% of GDP was unchanged by the announcement of the new targets, Joyce said. He had been asked whether the new target meant the debt track was now the priority over other spending pressures such as the Super Fund.

“We stand by that, there’s no change there. But in terms of having a longer-term debt target, we’re only three years away from 2020 now. We have to set up what we think the target should be. I’m very concerned to make sure we have the capacity to deal with future shocks.”

The new target was over a “reasonable time frame,” he said. “There’s no point being hairy chested about it.”

Infrastructure spending - Kaikoura costs

Elsewhere in the speech, Joyce said the government will allocate $11bn in new capital infrastructure over the next four budgets. The focus will be on infrastructure that “supports growth,” he said. Capital investment in Budget 2017 will be increased to $4bn from $3bn expected in Treasury’s half year update. Of this, $812m will be allocated to reinstating State Highway One north and south of Kaikoura.

“The $11bn is additional spend on top of investments already planned by the Government.”

Joyce said the capital allowance will be increased in Budget 2017 from a forecast $3bn to $4bn, in Budget 2018 it will remain flat at $2bn, in 2019 it will increase to $2.5bn from $2bn, and in 2020 $2.5bn from $2bn, giving the $11bn figure, up from $9bn in Treasury's half year report.

“Details of how the first tranche of that money will be invested will be laid out in the Budget, but in anyone’s language, this is a very big capital spend over the next four years.”

The government will target greater use of public-private partnerships and joint ventures between central and local government and private investors, Joyce said.

Govt books in order

Joyce noted that the government’s books in the first eight months of the financial year had been boosted by tax revenue nearly 4% above Budget 2016 predictions and 7.7% ahead of the same period last year.

“A growing and more resilient economy allows us to meet some of the pressing needs that the Government is faced with from time to time,” he said.

Kaikoura quake costs, EQC fund

Joyce used the speech to detail the expected costs from rebuilding road and rail corridors that were damaged by the Kaikoura quakes:

The biggest challenge created by the earthquake is the reinstatement of State Highway One and the rail line both north and south of Kaikoura. It’s a massive job – but I can report today that the entire project is not expected to cost as much was originally estimated.

The current expected range for re-instating the road and rail corridors is now $1.1 to $1.3 billion dollars, down from the previous estimate of $1.4 to $2 billion.

Both the road and rail corridors will be able to be largely re-instated where they were previously – except for 2.5 kilometres of new alignment north of Kaikoura.

The Kiwirail share of the corridor rebuild is estimated to be up to $400 million, the largest part of which will be covered by insurance. The Government has put aside a capital contingency for the balance of the rail costs.

The rebuild of the state highway is now expected to cost between $800 and $900 million dollars. So today Transport Minister Simon Bridges is announcing the Government will commit $812 million to the State Highway One rebuild as part of the capital budget in Budget 2017.

The New Zealand Transport Agency and Kiwirail both continue to expect their respective parts of this crucial transport corridor to open before the end of this calendar year.

Meanwhile, he provided an update on the position of the government's EQC fund:

The costs to EQC of the Kaikoura earthquake sequence are now expected to be $550 million. This will be met from EQC’s current cash position, but EQC will have very few funds available of its own after this event and the Edgecumbe floods.

The Government of course stands behind EQC, and the organisation carries billions of dollars of reinsurance to cover a major event, but the Kaikoura earthquake hastens the need to finalise decisions in relations to EQC’s future operations. Minister Brownlee and I intend to announce decisions on the EQC review in the next two to three months.

The total cost to government of the Kaikoura earthquakes continues to evolve – but currently is still expected to be in the order of $2 to $3 billion.

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.


New Zealand is growing by more than a Hastings every year. Is a few $billion in infrastructure spend a year enough to keep up with that growth?


So National increases debt by circa $100 billion in 8 years, making it 24.3% of GDP, then says they want to drop this down to between 10% and 15% of GDP. How are they supposed to do this? Oh wait, I know. They'll simply ramp up immigration, sell more SoEs (if we have any left) reduce the budget in the education, police, healthcare, welfare and infrastructure sectors and continue to fuel the house price bubble. Then they'll crow they paid down debt, despite making the country worse off; akin to bragging you lost weight by cutting off your leg.


Good discussion by economists here that is easy to understand. International experience is that housing crisis is created by strong demand acting on inelastic supply.

National -Joyce, English, Smith, Woodhouse and co are not doing anything about the strong demand -coming from immigration or about inelastic supply -which would require more infrastructure spending -$20 billion pipeline minimum just for Auckland....

Their economic success story comes from a highly unequal housing market..... it is a farce really... hopefully the public can see through it.

National had several years to address structural problems in the housing market after the GFC before demand rebounded. From as far back as 2007 we know that John Key campaigned on the fact he knew how to implement housing affordability reforms. The fact NZ did not implement those reforms means we are in the situation we are.

See the below discussion about a similar problem in US coastal cities (from above link).

Hites Ahir: After the Great Recession hit, much of the discussion and research focused on the irrational and speculative behavior of lenders and borrowers. There was no discussion on the impact of regulations on housing supply. Why?

Joseph Gyourko: I think the reason is that demand for housing had fallen so substantially after the global financial crisis, that home builders were no longer constrained by even the most severe local restrictions on building. This change in focus makes good sense to me, as the problem was insufficient demand, not excessive supply side restrictions. As noted above in my answer to your first question, it is the interaction of strong demand with inelastic supply that leads to high prices and affordability problems. Supply restrictions themselves lose their policy relevance in the face of weak demand. The missed opportunity from a policy perspective, I believe, was not understanding that they would become relevant again as soon as demand recovered sufficiently. Demand recovered first in our supply-constrained coastal markets. I believe we should have tried to loosen restrictions in the most constrained markets such as the Bay Area and New York during the downturn, but that time is past.

If attention is pointed towards a target e.g. the behaviour of investors the real issues don't come under focus. That is why in NZ and many other countries around the world, the regulatory regime does not come under the publics microscope. The problems are further amplified by the many ill-informed who support all regulation without ever having to use it or understand the implications.

Election year.

We voted for national as a country but the question that everyone should be asking is if we still want to vote for national after 9 years.

There is no viable alternative to vote for in my view. It is such a shame in NZ that we don't see more SME operators standing for election. The corporate children are not cutting the mustard and leaving to many people behind in the wake.

Who would want to be a politician today. An electorate with high levels of entitlement that doesn't stand *for* anything but blames the government for literally everything.

I'm actually not sure which came first the chicken or the egg Ralph? Have the politicians created the entitlement attitude with their constant game of dangling carrots.....or did the people collectively complain until the politicians came up with the carrot?

The stupidity is that it is the SME's who are getting hammered, they pay 95% of the taxes, they suffer the regulatory regime daily and yet they have no real or proper representation.

Fair question. I am not a big fan of the 'everyone is a victim' line of reasoning because to be a victim you must by definition surrender all control over your life. With that as the assumption I must tend toward personal responsibility as a real thing, in which case people must be responsible for even the carrots they choose to grab.

The trouble with SME's is they are vilified by the forces of envy, jealousy and socialist ideology. They could pay 100% of all the taxes and probably still be called fat cats who should be shot.

Sounds a bit like a convenient meme to justify the status quo if you ask me.

At this point I doubt any other parties would be doing worse. Our housing market is a mess and the flood of migrants they have let in to the country will significant strain our infrastructure and societal cohesion for years to come.

"At this point I doubt any other parties would be doing worse."

And yet your only counterpoint is an optimistic speculation.

Really!? I felt like I gave two clear reasons why National have failed.

I thinkt it was at least as weighty as the 'there's no viable alternative' or your 'change is pointless' line. Seems like we all have to lift our game.

I will try.

I paraphrased your rational (correct me if I am wrong) like this - "I presented clear evidence of problems, that proves (provides reasonable argument) that change is required".

I would now point out that change is not a noun, it is a verb. Change is not a solution to anything, it is a doing word, a process one passes through from one set of affairs to anther set of affairs - one must change to something else.

On that basis I criticised your substance, that other parties would hardly be doing worse, as being a mere speculation. My read of history is that change without any clear destination can go very wrong, and things can absolutely get worse.

I have been vocal on this site against calls for change that present no clear destination and no clear steps to get from A to B and can therefore cannot be debated for strengths and weaknesses in any rational manner. These calls are as vacuous as the Nike advertising slogan 'do it'. Do what exactly???

Ralph's read of history is "change without any clear destination can go very wrong, and things can absolutely get worse"

You do realise, a newly elected bunch could simply stand still and undo the mess the current lot created

No destination needed - but a clear objective - definitely

eg - turn the immigration tap off completely while the fix-ups take effect

Ah, the innocent joys of believing in impossible things. The Labour/Greens/Winston government of 2017 to 2000 turned out to be one of the most transformative governments in New Zealand history, making a series of decisions which proved prescient in their foresight for future generations of New Zealanders.

Some of the other political parties would rather shorten the noose on the SME's and whip away the platform. Hence National is the only option.......I agree housing is a mess but it is a manufactured mess and easily fixable but there is not a willing or capable person in Wellington. The corporate children have completely missed their apprenticeship time in the SME's and so they are blind and ignorant of the causes and affects.

Yeah, I'd address points here...but the problem is you have to waste too much time dismantling unnecessary straw men first.

I presume the 10-15% target date will later be scaled out to 2050 as with the pipe dream about water quality.

True perhaps we could change the definition of debt to gdp as well while we are messing with the stats.

debt is wealth, wealth is debt. Two legs good, fours legs bad.This is now how the financial system now holds together. The more debt you hold, the more it will reward you with resources, until the resource base can no longer hold. We are truely living 1984.

and they are selling our reserves. can't wait to see this future nz, thats when everyone will stop coming or people will start to leave...

They should sell more reserves. What we commonly have is large parts of valuable land tied up in exclusive white, male sports - such as the Remuera Golf Club which is a public reserve with a large fence around to stop the public getting access to it. The Auckland Council's subsidy of golf is greater than its subsidy of public transport.

private golf course v public preserve. there is a difference. but u make an interesting point re the subsidy. if that is the case then that is a no brainer, or alternatively they could give less, or none, subsidy towards the golf and even open it up for all the public. I would like to see the numbers though on subsidies/revenues from golf/public transport.

I don't care for golf at all. But suggestions that those courses should be paved over are just looney. Our cities and especially Auckland need those green leafy spaces between the suburban blight.
Shoot the old white males golfers if you feel it important, but leave the trees and the grass alone please.

@KH agree with you

Golf Courses are a living breathing sink-hole that deals with massive volumes of storm-water during storms. Do away with them at your peril. In the past 6 months Auckland has been deluged with storms and storm water. For the first time in my memory Auckland infrastructure and natural landscapes have not coped with the volume of water being hurled down. Land erosion, Land slips, constant power disruptions and power outages. All symptomatic of the increased building densities spreading from the CBD outward.

The more you pave over the greater will be the problems being experienced now.

I'm no golfer. Never have been.
But golf-courses are essential relief valves in the citiy

The numbers aren't that complex. The five major golf courses in the CBD are probably worth a billion (not as reserves but sold off for some other use). That means the couple of hundred users are subsidised by the opportunity cost of the value (say 10% of 1 billion - $100 million per annum over say 1000 users or a subsidy of $100,000 per annum each). This website railed against this when an independent report highlighted this to Auckland Council - but no Councillors (and especially not the left) would go near it. On the same basis the total land value of AC golf courses is around $4 billion - or $400 million per annum. And this is just golf courses - we havent spoken about bowling greens or other assets. A major difference between these and other assets is that they are exclusive use. I shouldn't walk across a rugby field during a game - but when the game is over I can fly a kite on it - wheras I can't with golf courses.

And before we get buried in the concept that this is selling off the community assets - if the Remuera Golf Club was broken up for schools - with sports fields- and perhaps some retirement villages (so houses were freed up) would that be such a disaster - and would it being better than the exclusive preserve of the rich

But for any buyer at let's say 1 billion for them to get any return they will be looking to sell/develop it.which may not be gud for big green open spaces in a city.they are the lungs of the city.

It seems there is alot of agreement on green spaces it just boils down to balance and access.

you might find that these green spaces will come in handy for growing veges when the next crash hits

Honest question. When the GFC hit what would you have done differently?

a) cancelled the tax cut.
b) Kicked off an infrastructure build to get us off fossil fuels and onto renewables. Things like electrifying the main rail line.

But we still would have to borrow and if we were to build infrastructure then borrow more.

but if you had invested in the infrastructure for the next fifty years you would have built them when pricing was low, interest rates were at there lowest while providing employment and cash in circulation.
also your tax take would not have dropped as much as some of that money would of returned

I think both parties would have done the same - borrow for stimulus. Austerity isn't a typical left-wing response to a recession.

Cant say I've seen National do much stimulus, however spending like crazy isnt the answer either.

That is more what they did though. Borrow and spend through the GFC. They had some ready targets in Chch, which kind of took care of a bit of the stimulus element...

They borrowed and massively increased debt during the GFC, with the intent to pay it off afterwards.

I would have hit the people who caused it the pocket. Instead they are having a second attempt. And filling their boots.,,,into the bargain.

We must be so gullible. We have learned nuffink. How quickly people forget...not even 10 years....since the last episode.

Now all over the World, coming to a program ...near you.

All in Greek, Chinese and Venezuelan, so many languages, even must have heard of it...

1 Yank and it is off, one Canadian, no discrimi- nation....Bet it on the house.

Or were you busy extending your Housing portfolio...and driving that big 4x4 and it fell on deaf ears.

About sums it up.

None are so blind as those that dont want to look.

Actually, I don't own a house and I drive a 1.3 litre hatchback.

But as far as I can see none of our banks needed bailing out and the crises was caused overseas so not much we can do about it.

So how should have we, NZ, respond to the GFC.

Bought more houses

Yeah - should have done that one too.

I would not have sold off the power stations. The money raised now is less than what the investors have been paid in dividends. Except the dividends keep on rolling...

No "facilitation payment" for rich Saudi businessmen.

No flag referendum.

No spending money on charter schools, which cost more than regular schools.

No tax switch which gave cash to the highest PAYE earners, and took from those spending all their cash (the poor) in 15% GST. While slightly reducing tax take (how else was everyone "better off").

Dis-incetivise parasitic investing in property and land banking, to promote growth in productive business.

I would have kept making contributions to the super fund. They would have outperformed the cost of the debt many times over.

Reduced military spending, partly by having no troops overseas. No great increases to SIS or GCSB funding - If you have no enemies then you have no need for spying.

Not get a new fleet of BMW limos for government. Reduce paliamentary perks, not doing double dipping of accommodation benefits.

Not pay for hotels to be bought and gifted to private owners in pacific islands.

No spending 53 million for a convention in middle east for the benefit of specific companies.

No three strikes laws and tightening of parole conditions making our prisons overflowing, requiring more prisons to be built. Also no outsourcing the management of prisons, as surely that can only lead to higher recidivism.

I would have not opened the immigration flood gates to prop the economy up, when that only delays the problems.

I would have not let finance companies sign up to the retail deposit insurance scheme.

Build state houses, instead of paying motel owners exorbitant rates.

Plenty of ways to save money in tough times, if that is truly your aim.

My question to you is, what specific things did the government do that turned out to be the right move? National get credited with steering us through the GFC, but I am at a loss as to what they actually did in that respect...

Some of those things I agree with some I don't. Some cost money and others save us money - but I think we still would have to borrow a lot.

As I said it was an honest question - I don't know what I would have done.

I guess my point is, there is a giant chasm between government action and rhetoric.

The government talks a lot about reducing debt, when in fact they have increased it.

They talk a lot about reducing taxes, but don't get challenged on what debt that will build up when they do, or what services or infrastructure will have to be cut.

They talk a lot about investment, but they sell off anything making money.

Didn't they rebuild and revitalize Christchurch? The convention centre is surely be attracting many quality international conferences every year. The completed city green-frame is also a lovely park and a beautiful amenity.


>"Build state houses, instead of paying motel owners exorbitant rates."

Yes, it must require quite the philosophical bent to shell out $2 Billion every year straight into the pockets of private investor landlords with nothing to show at the end of each year, rather than gradually building up more houses with the target of reducing cash given to investors.

"The focus will be on infrastructure that 'supports growth,' he said.

Why?! The reason we need to pump more money into infrastructure, especially in Auckland, is because of population growth! If, however, he means economic growth, then increasing productivity would be a much better goal and would lead to a much healthier economy. Building a few more roads a year isn't going to do much.

National will target net debt of 10-15% of GDP by 2025, Joyce announced.

Which government assets that have not already been revalued without commensurate tax payments and partially sold off for cash to offset debt are still left?


Someone is going to have to pay in the future for the under investment in infrastructure, for this artificial population growth. Already we are paying with increased house prices. Until we have sorted the housing crisis we should be slowing immigration right down.

destined for the bin ... add it to the no predator / clean water / housing unaffordability targets

"Joyce said the capital allowance will be increased in Budget 2017 from a forecast $3bn to $4bn, in Budget 2018 it will remain flat at $2bn, in 2019 it will increase to $2.5bn from $2bn, and in 2020 $2.5bn from $2bn, giving the $11bn figure."

how does he get 11bn here. more like 2bn(1bn+.5+.5) extra on top of the money they were already going to spend. but I could be mistaken or not able to follow this creative numbering.

based on this it has increased since 2008 and only in 2014 have they started to stableize/decrease it.
but I would like to see a better breakdown with expenditure and revenue.

OK so we are all grumpy. But any debt reduction is a good thing. I see no government has any business in having debt at all.

Government using debt to build up infrastructure makes sense. It spreads out the cost over the long term beneficiaries....

Increased infrastructure spending would be a very small compared to how much we have spent on increased housing in recent years. In theory it should be easily affordable. What it costs is political will......

Well the only alternatives would be incentives for private business to supply the infrastructure the country needs (with all the problems of dealing with monopolistic behaviour), or the government to get into saving first before spending. And if they are saving first then it just feels like we are being taxed too much.

I wonder how much of the increase in tax take comes from property investors having to meet the new LVR thresholds, so had to pay down some debts of which they have now been taxed on these payments?

Have you seen this article guys? Maybe this is where Auckland is heading...

That's a really out of character comment for you Double-GZ? Has something changed your mind?

Updated with a few more comments in there from Joyce - shock absorber, Cullen Fund subheads.