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BUDGET 2019: NZ debt target to be more flexible from 2022

Thursday 23rd May 2019

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The government remains committed to reducing net debt to 20 percent of gross domestic product by 2022 but plans to shift to a target range rather than a single figure, says the finance minister. 

"At this point, we are looking at a range of 15-25 percent of GDP, based on advice from the Treasury. This range is consistent with the Public Finance Act’s requirement for fiscal prudence, but takes into account the need for the government to be flexible so that it can respond to economic conditions," Finance Minister Grant Robertson said in a pre-budget speech to a Craigs Investment Partners investor conference. 

He reiterated that "we are reducing the level of net core Crown debt to 20 percent of GDP within five years of taking office."

The "current  20 percent target falls in the middle of the new range that will exist from 2021/2022 onwards," he said. 

The range gives governments more capacity to respond to different circumstances, he said.

"For example, a government may choose to move higher up the debt range to combat the impact of an economic recession, or where there are high value investments that will drive future economic dividends. At other times it may be prudent to reduce debt levels to the lower end of the range to provide headroom for future policy responses." 

The government has been under pressure to loosen its purse-strings and ditch self-imposed fiscal discipline to provide a fiscal injection to the economy through an even greater infrastructure spend.

The latest Crown accounts, for the first nine months of the June year, showed net debt was $60.51 billion, or 20.6 percent of GDP.

Forecasts in Treasury's half year fiscal and economic update in December showed net debt is forecast to be 20.9 percent in the year to June 30. It will ease to 19 percent by the year to June 2022. 

"New Zealand has low levels of government debt by international standards, but we remain vulnerable to shocks that are beyond our control, such as earthquakes and other natural disasters. We have made our commitment to keeping debt under control to ensure that future generations of New Zealanders are in a position to be able to respond effectively to any such shock," said Robertson. 

He also said next Thursday's budget will show the government will maintain government expenditure within the recent historical range of spending to GDP, which has averaged around 30 percent over the past 20 years. 

The New Zealand 10-year swap rate dropped 3.5 basis points to 1.995 percent in early trading, while two-year swaps were down 2 basis points at 1.495 percent. 

(BusinessDesk)

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