National has a new line of attack, calling the Government out for increasing debt by $10 billion. Although technically correct, Jason Walls says National needs to watch its step with this issue

National has a new line of attack, calling the Government out for increasing debt by $10 billion. Although technically correct, Jason Walls says National needs to watch its step with this issue

By Jason Walls

The National Party has been notably absent from the debate around Government debt for the last few weeks.  

At first glance, it makes sense why. As a right-wing party, National should be championing policies that limit borrowing and spending.

As prominent economists called Finance Minister Grant Robertson’s Budget Responsibility Rules a “fiscal straightjacket,” the Opposition stayed out of the debate.

Finance Spokeswoman Amy Adams issued no press release when ANZ said the 20% debt target was an “arbitrary number.”

Finally, after some weeks of the debate marching on, I asked National leader Simon Bridges if he thought the Government was wrong to commit to the rules.

“No, I don’t,” he told me.

“I think debt matters. I think it is important to pay it down, I actually agree with the Prime Minister on her point that we do need to be resilient to shocks.”

A fairly predictable answer and one I was expecting.

But this week, it’s clear the Opposition changed tact.

“Can he confirm that the Half Year Economic and Fiscal Update (HYEFU) shows the Government borrowing an extra $10 billion of net core Crown debt?” Adams asked Robertson in the House on Tuesday.

Robertson gave a calculated answer.

“I can… confirm that the Government will, using the debt measure that the previous Government did, reduce net core Crown debt to 20% of GDP by 2021-22.”

To break it down – both Robertson and Adams are right, in a way.

The Government is planning to increase debt by $10 billion to $69.40 billion by 2020. But that number drops to $66.76 billion by 2022.

By then, $66.76 billion will account for 19.3% of New Zealand’s GDP because of the growing economy, according to HYEFU projections.  

It’s worth noting that debt as a dollar figure also increased by almost $5 billion under National’s latter five years in Government but decreased as a percentage of GDP.

Let’s look at the numbers

But where Adams trips up is around debt servicing costs.

“So at the same time that he’s touting large Government surpluses and a growing economy, thanks to the previous Government, why is he racking up billions of dollars in extra borrowing and committing hundreds of millions of dollars in financing costs to New Zealanders?” she asked in the House the same day.

Her criticism was a bit more pointed when I asked her about the $10 billion in extra spending before she went into the House on Tuesday.

“Just because you can borrow, doesn’t mean you should.

“It’s like saying ‘spend everything on your credit card limit.’ That will have considerable debt servicing costs that New Zealanders are going to have to pay for.”

My advice to Adams? Tread carefully on this issue.

According to previous Budget figures, between 2013-2015 (when National was in Government), the cost of servicing Core Crown debt was on average 1.48% of GDP – or $3.63 billion a year.

Under HYEFU projections over the next five years, the cost of Government debt will be an average of 1.10% of GDP – or $3.35 billion a year.

That’s a difference of almost $300 million a year.

National’s tactic has long been to paint Labour as irresponsible managers of the books, but it’s clear Adams lost this round.

Government debt

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A primary driver for the cost of servicing debt is interest rate. I'd recommend comparing the debt itself, or maybe even looking at the last couple of years (2015-2017) for comparing the cost of debt service instead of picking years with much higher interest rates than the current interest rates. Without wearing party blinders, I'm far less sure as to whether there was a "winner of the round".

I’m old enough to remember when National criticises Michael Cullen for running a cash surplus, they said he unorthodox and painted him as some crazed hoarder of cash.

Having said that I do worry about taking on debt at the top of the economic cycle. I understand Labour are funding infrastructure with it, but it says a lot about how weak our economic fundamentals are that we a shortage of revenue.

Seems illogical to borrow a $ billion and gift a $ billion to the Pacific region. All part of the money go round, lost in the paperwork, but at the end of the day, as far as balancing the books, for every credit there must be a debit.

Then you should remember the mess Cullen left the country in . All Govt depts bloated and bankrupt Acc etc

ACC was fine. The new Govt just thought ACC should not be a pay as you go system like almost every other government service, but they should have enough cash on hand to pay out all existing claims 100% into the future. That made no sense, and I am not sure what the motivation was behind it.

You're joking right. NZ was one of best survivors of the GFC thanks almost exclusively to Cullen, and you say he left the country in a mess!

Rubbish, please give examples.

Could it have been better? yes HC and Co should have delt with the looming housing problem 15 years ago, they chose not to as they wanted the $s (tax income) off it.

Debt bloated? I am sure there was some fat, however looking at the end result of 9 years of National neglect , denial and in-action on Public services is way worse.


"Rubbish, please give examples"

Both Bill English and Don Brash gave interviews on RNZ shortly after National was elected in 2008 saying exactly that. I heard them.


Don't worry, Kiwis can just keep increasing the asking prices of the houses they sell to each other. Problem solved.

Or hire out traffic cones at $1.30 a day.
A month. Its paid for.

So they are borrowing an extra $10 billion. That seems almost bang on to Joyce's "$11 billion hole". A lot of economists laughed at him but it seems he was right. Regardless of which figures you use we are still borrowing more. To compare this governments fiscal position with the last governments is disingenuous to say the least - we had the GFC and two major earthquakes. If we are borrowing then there is no surplus.

Simply not true.

Perfectly normal to have a surplus and additional borrowing. eg Auckland Airport / Ryman Health.

Borrowing is driven by investment ex the Balance Sheet - many growing firms have surpluses and increased borrowing.

Yes, National were borrowing while proclaiming a surplus.

Suggest poster's username be changed to NoFacts.

Sorry - duplicated

I agree it looks suspiciously like the same number.

I wonder if that is because Joyce and the "do nothing" Nats knew *exactly* how much under-funding was going on and were presenting a so-called surplus just to get re-elected?

Like Martin Luther King, I too have a dream.

I dream of a day in which public debate could move on from hysterical anxiety over public debt ratios in developed economies with sovereign/fiat currency issuing governments with floating exchange rates that borrow in their own currency and have no currency pegs, gold standards or fixed exchange rates to defend....... (UK,Canada, US Japan, Australia, NZ.....)

Deficits need to be seen as functional things that support demand to offset saving and current account deficits. Focus needs to be on getting the deficit level right to promote full employment without causing excessive inflation - not on the growth of cummulative stock of public debt (which - under the conditions I mentioned - can never be defaulted on unless you choose to and is really just a number)....


Did you hear that cs? That was the sound of your comment passing straight over the heads of the bickering plebs trying to score party political points off each other.

Deficit spending as the panacea
Sounds like a Ponzi.
Which it is.

If your (Govn) deficit spending is 2% but the economy grows 4% then this makes sense. So the present Govn's insistence on paying down debt at the moment is deflationary/contractory in nature. as it removes money from circulation. It is simply stupid, I hope they are simply playing to the market perception / desires which shows how economically illiterate many are really.

Meanwhile of course when you step back even further it is indeed a ponzi.

On the one level, yes your are 100% right.

However ultimately what under-writes "money" or "spending" or an "economy" is energy. ie a dollar bill is an IOU for work, if there isnt the energy to cancel that IOU (and there isnt) its all la-la-land make believe.


Considering National took government debt from $20billion to $90billion it would certainly pay for them to tread carefully on this topic.

So you think more borrowing is a good thing? Not sure your argument really.

Again - what's your argument? So National borrowed too; the GFC and two earthquakes would seem to be good reasons to do so. We now have a government that heavily criticised National for borrowing so woosh hypocrisy there too. However, the point remains the same; this government claimed its election promises were affordable and yet they are borrowing an extra $10 billion. You seem to be saying that since National borrowed it's ok for Labour - that's a recipe for very poor fiscal policy for the future.

My argument is that they are exposing their hypocrisy on a monstrous scale.

And what has that got to do with Labour borrowing an extra $10 billion???

I wasn't discussing that, I was discussing National's hypocrisy. You're trying to argue with my point by using two logical fallacies.

You're not addressing National's hypocrisy at all. You're presenting a false dichotomy.

Good call

earthquakes just provide a convenient excuse to borrow to provide employment. Borrow up and the future will be built even better ... ahem

So at the end of the day we get, vote right they borrow. Vote left, they borrow.

Sounds like we might be currently on hard times but that the future is bright.

Under the Clark government they did the opposite of borrowing on a massive scale. They reduced government debt as a % of GDP from 22% down to 5%.

The big picture is that our accounts really are in great shape and many countries would die for the sort of numbers both parties are adhering to. In surplus under GAAP.

Net debt 20 or 22% - totally irrelevant - it's not 80% like many advanced economies.

One of the reasons our bond rates are lower than the US - inconceivable; not so many years ago.

We really do have a lot to be thankful for here in NZ.

That's why I see ever continuing immigration pressure - why would you not want to come. Universal Health, Accident and Super and strong growth.

An interesting comment from Bloomberg last Sept - both parties are the same from a foreigner's macro perspective and totally fiscally responsible - not something you could say about the US !

$10billion is 4% of GDP, it's a pretty significant lump of money. It is also a few hundred million a year in interest payments that you then no longer have to spend on election promises. Though Labour seems to not regard that as important anymore - so long as the king Winston is kept well lubricated with fun money for his jollies.

How much did National need to borrow for their $20 a week tax cut?

Net debt 20 or 22% - totally irrelevant - it's not 80% like many advanced economies.

What about private debt? Is it relevant? Do you understand the relationship between public and private debt?


so long as debt creates a return, or the output is measurable is some way then I’m fine with it. Good debt should ultimately create a return, resulting in efficient gains. What concerns me with the CoL is thus far they haven't quantified any additional spending in terms of productivity gains. Its fairy dust stuff. All pie in the sky based on emotion. This is a dangerous way to govern, and is NOT sustainable. We may very well continue with cash surplus’s initially, however long term this philosophy will be very damaging to the country as a whole.

so long as debt creates a return, or the output is measurable is some way then I’m fine with it.

How do you measure ROI? How would you go about measuring the "public good" of infrastructure? The Australian govt is going gangbusters promoting immigration, but the quality of life is deteriorating in Sydney and Melbourne? The lack of infrastructure and housing is to blame, despite GDP increasing.

easy. heaps of different measures - opportunity cost being one. Most contracts have some way of measuring outputs built into them. This is nothing new. However it seems to have fallen on deaf ears with the CoLs.