The country's biggest bank is suggesting New Zealand’s 'urgent' need for infrastructure outweighs the Government’s 'arbitrary [debt] target'

ANZ is weighing into the debate over the Government’s fiscal responsibility rules, saying “simple, transparent debt financing would be preferable to workarounds to satisfy an arbitrary target.”

The bank’s Chief Economist Sharon Zollner says given New Zealand’s “urgent” infrastructure needs, more investment should be undertaken and funded from the central Government’s balance sheet. 

“[ANZ] thinks an argument can be made for increasing near-term debt targets for the purpose of growth-enhancing infrastructure spending.”

In its Coalition agreement, the Government promised to reduce core Crown debt to 20% of GDP by 2021/22. Current Crown debt is 21.6% of GDP.

Finance Minister Grant Robertson has come under fire for sticking to the rules in recent weeks after he and the Prime Minister dampened Budget expectations in light of major infrastructure funding issues that have recently come to light.  

But Robertson has maintained the Government can fund infrastructure projects without breaking the rules and getting debt to 20% is important to safeguard against an economic shock.

Although she doesn’t go as far as saying the Government should break the rules, Zollner says ANZ does not think “strict rationing of infrastructure spending is necessary at this point in time.”

“There is nothing sacrosanct about the essentially arbitrary round-figure target for Crown debt of 20% of GDP in five years.”

This is a view shared by former ANZ Chief Economist Cameron Bagrie, who last week called the target a “fiscal straightjacket.”

Earlier this month, S&P’s Primary New Zealand analyst Anthony Walker said if Government debt increase 2% or 3%, it would have very little impact on the agency’s A-1+ credit rating of New Zealand.

Zollner says the Government’s books are in great shape and it can borrow on favourable terms.

Although weighing up committing to its fiscal responsibility rules with promising to invest to correct the infrastructure deficit is a “difficult balance,” Zollner says years of population growth and constrained Crown spending has put significant pressure on infrastructure.

Over the last decade, New Zealand’s population has grown by more than half a million people with half of that growth occurring over the last three years.

Despite this, the combination of both public and private sector spending on infrastructure was flat between 2015-2017, according to numbers from the Ministry of Business, Innovation and Employment.

As well as this, ANZ data shows new capital spending for each 1,000-additional people has fallen from $142m in fiscal year 2011/12 to $37m in 2016/17.

“As a result of this under-investment in recent years, infrastructure spending needs to be urgently undertaken on a range of fronts,” Zollner says, outlining housing, education, transport and health as major areas in need of funding.

Can the Government have its cake and eat it too?

Last week, Transport Minister Phil Twyford said the Government could use special purpose vehicles to help fund infrastructure, but the debt taken on would not appear on the Government’s books – essentially bypassing the responsibility rules.   

“It’s a balance sheet that’s not council or Governments – it’s a public purpose hybrid if you like,” he said.

But Zollner says developing special-purpose funding vehicles and negotiating with rating agencies about what they truly represent will bring about delays to projects, not to mention funding costs may end up higher than they need to be.

“Rating agencies may look askance at any of these funding measures if they perceive them to be an opaque or risky complication of the Government’s books.”

Government debt

Select chart tabs »
The 'Total' chart will be drawn here.
Loading...
NZ$ mil
Source: RBNZ
The 'percent held by nonresidents' chart will be drawn here.
Loading...
NZ$ mil
Source: RBNZ
The 'percent held by the public sector' chart will be drawn here.
Loading...
NZ$ mil
Source: RBNZ
The 'percent held by the financial sector' chart will be drawn here.
Loading...
NZ$ mil
Source: RBNZ
The 'percent held by everyone else' chart will be drawn here.
Loading...
NZ$ mil
Source: RBNZ

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?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a 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.

20 Comments

Banks advocating more debt. Well they would say that wouldn't they.

So we can't afford the infrastructure. Remind me again how population growth is supposed to be our economic saviour.

Well indeed.

Perhaps I'm a bit of a thicko but do those charts show that for the previous government's last 2 terms population growth and public debt was allowed to balloon, while per capita infrastructure investment collapsed?

Remind me again how it is that National is supposedly the party of "fiscal responsibility" and Labour is "financially cavalier"? Now I acknowledge we had the GFC but it seems like we now need to play catch-up and this has to funded somehow.....(cue complaints about "tax & spend")

Ssshhh ssshhh little one, don't think too hard. Repeat after me "Just vote National next time - they are the businessman's friend..."

We can bypass the funding responsibility rules if we borrow in a 'special purpose funding vehicle'. Magic! But er. Isn't that still borrowing ?

Typical politicians, make rules/promises then spend their time working around them and/or backtracking.

Ssshhhh sssshhhh, you're not supposed to think so hard. Look at how nicely Jacinda smiles! And isn't Winnie a nice looking man...

“Rating agencies may look askance at any of these funding measures if they perceive them to be an opaque or risky complication of the Government’s books.”

No they won't, they never ever do because they know who pays their bills.

We spent nearly 4 times on infrastructure per '000 of our growing population when coming out of a hard recession in 2011-12 than we are now despite being in budgetary surplus and posting record employment levels.
This under-investment in infrastructure may lead to our businesses and highly skilled people setting up shop elsewhere once global growth and employment revert to healthy levels.

1) The government should manage the immigration rate down to a sustainable level. The need for infrastructure improvements will reduce, but there is still some backlog.

2) Implement an immigration policy based on maximizing gdp/capita growth (not gdp growth)

3) Increase the debt limit a little & fund the infrastructure needed for the reduced immigration rate.

Great plan but unfortunately your points makes this argument a catch-22.
In our recent history, we have not spent nearly enough on innovation, skill development and infrastructure. As a result, we lack the fundamentals to grow into a specialised, high wage economy.
Our economy is heavily dependent on industries like tourism, hospitality and agriculture that predominantly hire low-skilled, low wage workers. If we were to stop the flow of low-skilled migrants, our economy will struggle and the govt. won't have enough revenue to fund the expenditure on our backlog.

The wealthy pay most of the tax - the lost revenue from the low skilled will be minimal.

For transport at least congestion tolls in Auckland and Wellington will additionally reduce/delay the infrastructure needs.

The higher paid workers pay most of the tax, not the wealthy. The truly wealthy are able to avoid much tax and take advantage of greater levels of unearned income while paying less tax.

That's why your Ex Expat - a salaried employee with one house - bears a disproportionate share of the tax burden compared to your property developer or speculator.

Yes, $2,312 in PAYE every fortnight to fund the pixie dust supply for the COL However, at least that goes to zero when I have no income. If TOP policies were implemented then they'd suck another $25,000 plus out of me every year, even if I had no income.

Interesting that someone earning $210k (salary) per year has the amount of time you do to spend here all day, everyday, moaning about the government.
Also very interesting that your company processes a salary of that size fortnightly.

Think outside the usual rut Advisor. If cheap labour was hard to get wages would go up. The battlers would have more money and spend more. Increasing wages should be a national objective, and as that happened then business would see the benefits in innovation, and capital investment.
It would be great to see those low wage, exploitative industries with low return reduce in dominance.

Think outside the usual rut Advisor. If cheap labour was hard to get wages would go up. The battlers would have more money and spend more. Increasing wages should be a national objective, and as that happened then business would see the benefits in innovation, and capital investment.
It would be great to see those low wage, exploitative industries with low return reduce in dominance.

Govt can borrow money at 2.7% at the moment.
Get plenty.

I think it is starting to dawn on people that Labour cannot keep its promises of spending more, not increasing taxes, and lowering debt. Something has to give - given Robertson comments it appears to be spending. When Labour/Greens announced the budget rules it was meant to provide certainty but it also acknowledged that National's approach was correct over the last 9 years (which included the GFC and two major earthquakes). I would say a continuation of Cullen's approach - keep debt low and increases in social spending as the money came in.

Given the need for infrastructure spending I propose an infrastructure bond(s) of $100 billion over the next ten years repayable over the next 100 years. Ireland recently got a good 100 year bond rate but of course that was in Euro. However, pension funds around the world are crying out for such bonds. It would take a couple of years to get the right set-up before undertaking such a massive spend (urban/regional development authorities etc) but it would be trans-formative for this country. That would be a generational moment that I would support.

Of course the government should spend a bit more. 30% -40% public debt-gdp wouldn't make us anything out of the ordinary by international comparison. Given the very low inflation we have it would hardly be hyper-inflationary. Furthermore, being a sovereign currency issuing government, NZ can never default on its debt obligations in NZ dollars. So no need to hyperventilate about either inflation or default.
Sorting out crumbling infrastructure and public services would have huge benefits for the very many people struggling to get by in NZ and for productivity in general. The alternative is growing political dissatisfaction with both major parties and populist chaos given a recession. NZ does best when we do a sensible social democratic compromise and manage our capitalism so ordinary NZ-ers feel they get a fair go. Enough with the austerity approach that leads to a revival of Dickensian society. The private sector doesn't become some dynamo because of government austerity. Time to allow the public sector to expand a bit to level things up a tad. It's that or the pitchforks.