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Relaxing of borrowing constraint welcome, but broader review needed

“The announcement by the Minister of Finance that the Government was moving from a rigid 20% debt target to a range between 15% and 25% is welcome,” CTU Economist Bill Rosenberg says. “At a time when interest rates are low it makes absolute sense to fund more of our much-needed infrastructure development such as hospitals, rail, roads, public transport and housing, from debt rather than current income. That would free up revenue to be spent on urgent priorities such as mental health, repairing public housing stock, education and training, and helping people out of poverty by implementing the recommendations of the Welfare Expert Advisory Group.”

“Even 25% debt is low by international standards, and it is even lower when measured in the way international agencies do, which includes the New Zealand Superannuation Fund. It is currently 7% on that score. Internationally, prominent economists are debating whether countries with far higher debt levels (such as the US) need to reduce their debt in these circumstances. There are more urgent priorities.”

“But there is a bigger picture. Debt levels are just one aspect of New Zealanders’ wellbeing. There is no point in having exceptionally low levels of debt and government spending when Kiwis are living in poverty, our health systems are failing in important ways, working people and businesses are crying out for better education and training, and our environment deteriorates. The “fiscal responsibility” rules of the last 30 years have accompanied historically high levels of poverty, unemployment, inequality, a deteriorating environment and a low value economy. They are not solely responsible but they have not allowed Governments to address these mounting and unsustainable problems. It is neither prudent nor responsible to privilege exceptionally low debt levels over major social, human, environmental and economic needs. A better balance must be struck.”

“We urge the Government to make more use of its borrowing ability the build the productive and social assets our country needs, and to also signal a move towards the greater spending that is required to address New Zealanders’ needs. These can be done while remaining prudent fiscal managers.”

“It should carry out a full review of its Budget Responsibility Rules which are not fit for purpose in terms of New Zealanders’ wellbeing,” Rosenberg said.