Editorial: Yes to infrastructure, no to excessive fretting over the debt
OPINION: Finance Minister Steven Joyce has begun advertising his first Budget with big talk about new infrastructure – and needlessly fearful urgings over the national debt.
Tax cuts, meanwhile, have been momentarily sat on, perhaps to lower expectations before a surprise, or perhaps because of the exit of John Key.
The plan to boost capital spending is welcome and indeed overdue. The past decade has offered a historic opportunity for public spending on infrastructure: especially in the years immediately after the global financial crisis, borrowing costs were exceptionally low, domestic demand sagged, and New Zealand had plenty of projects crying out for attention.
The Government did not wholeheartedly embrace this opportunity – it was too keen on cutting public spending. It devoted some money to a few causes, like an ultrafast broadband network and a handful of expensive major highways, some with dubious cost-benefit ratios.
But its blind spots were more notable. It singularly failed to answer the pressures on Auckland. For instance, the city lacks an even vaguely appropriate public transport system for its size. So why did the Government stall for years over a critical rail line?
Worse, it failed to act on the long-smouldering housing crisis. Proportionate public spending – whether on the foundations for new suburbs, or on houses themselves – would have helped to alleviate it.
The Government still won't do much of that, and Joyce's infrastructure plans, yet to be fully revealed, probably don't include it.
That is partly because he has also set himself an onerous new target for reducing the national debt. The Government has been aiming for a level equal to 20 per cent of GDP for its time in office; now he proposes a new standard of 10 to 15 per cent .
It is right to keep a lid on debt at the top of the economic cycle, where New Zealand is now – to leave fuel in the tank for a future recession or natural disaster.
But New Zealand's current net debt – about 24 per cent of GDP – is already extremely low by international standards. There is scant to be gained by cutting it to ever more minuscule levels.
In 2008, a few months before coming to power, Bill English said: "New Zealand does not have a debt problem, we have a growth problem and we have a productivity problem." Partly because of this diagnosis, he rightly allowed debt to rise to cover higher welfare costs during the recession.
Eight years later, debt has grown but it is still comparatively low – and New Zealand's productivity and wealth are still mired far below those of other nations that were once peers. Joyce is full of bluster about the country's economic growth, but in truth high immigration accounts for most of it and per-capita incomes are still crawling.
People will disagree about how to fix this relative decline. The Government certainly hasn't done it. Excellent and enabling public infrastructure is surely part of the answer. Excessive fretting over public debt is not.
Clarification: An earlier version of this file did not distinguish between gross debt and net debt.
- The Dominion Post