Debt to pay for infrastructure

Last updated 23:16 03/08/2008

MAARTEN HOLL/Dominion Post

MAN WITH A PLAN: John Key addressing National's conference in Wellington at the weekend.

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National will increase the nation's borrowing as a share of what it earns by two percent if it becomes government, a level the Government claims could be ruinous for the country's future.

National Party leader John Key yesterday confirmed for the first time that the party would increase the country's debt-to-GDP target from 20 percent to 22 percent in order to fund nearly $5 billion worth of infrastructure spending.

That means that rather than pay for large capital works from cash, as Labour largely has done, a National government would borrow the money.

Prime Minister Helen Clark said National's plan was similar to former prime minister Sir Robert Muldoon's debt-ridden "Think Big" programme.

Mr Key today said it was absurd to compare him to Sir Robert.

"Helen Clark's dreaming. In 1984 when Rob Muldoon left office debt to GDP was enormous."

This morning on TV One's Breakfast programme Miss Clark said the plans were hilarious and crazy.

"We're not borrowing for tax cuts? yeah right," she said.

"I just think it's mind boggling stupid. You go out and borrow at a time when the international markets are in crisis?"

On Newstalk ZB she described National's plan as incredible.

"The big idea is just borrow the money. Run up the debt. All our students know how hard it is to pay a debt back, all our families know how hard it is to pay a mortgage back and here we are in the middle of international financial market turmoil and the National Party want to borrow the money."

National's finance spokesman, Bill English, told the party's conference on Saturday that he expected the current economic downturn to reduce the amount of money National had available to spend, but this did not change the party's plans to invest in infrastructure or cut taxes.

"I want to reassure people that National will not worsen this situation. We will be careful stewards of the economy and of taxpayers' money.

"On the other hand, we need to keep things in perspective. Small operating deficits, for a limited time, are not the end of the world," English said.

"Our policy focus is on lifting our prospects over the next three to five years."

English said any prudent business borrowed to increase the size of a company, rather than use "petty cash".

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But Finance Minister Michael Cullen said National risked doing "serious damage" to the reputation of New Zealand as an investment destination with plans to "bury the Crown in more foreign debt".

"It is a tragedy of New Zealand history that previous National administrations got our country into a mess in the past through massive overseas borrowings," Cullen said.

"The hurt caused to families and to small businesses, when those damaging policies eventually had to be corrected, was immense in our not-so-distant past."

But Mr Key said the borrowing would be solely for infrastructure and even with the increase, New Zealand's debt to GDP levels would be below most other developed countries.

On Radio New Zealand he said National would look at putting money into roading, public transport, energy and water.

"We want to unclog the arteries of our economy if you like so that we can grow."

Cullen said Labour was already involved in the largest-ever investment in New Zealand's roading network, had repurchased the rail network, overseen 1300 megawatts of new electricity generation, and built seven new hospitals.

This had been done while reducing Crown debt from more than 35 percent per cent to about 20 percent of GDP.

English said it was "rich" of Cullen to lecture National on reducing debt when the incoming 1990 National administration inherited a debt-to-GDP ratio of more than 60 percent from Labour. By the time National had left office in 1999, it was almost half that, he said.

National will not say exactly what it is planning to build if elected, but will pay for the projects by issuing infrastructure bonds essentially shares in public works such as roads or power stations that could be bought either by institutional investors or individuals.

National is also proposing to change the law to allow public-private partnerships (PPPs) so that private companies can tender to build and run the projects on the government's behalf.

Under the plans announced yesterday, National will introduce priority consenting for infrastructure projects of "critical importance", which will be able to leap-frog the usual consents process under the Resource Management Act.

These projects will be taken out of local hands and instead be "called in" by the government and determined nationally, rather than going through local councils.

National says this will dramatically cut the length of time a project takes to get resource consent, but will still allow for "proper environmental assessment" and for communities to have their say.

- with NZPA

- © Fairfax NZ News

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88 comments

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Daryl McKay #88 05:26 pm Jan 28 2009

Well what an enlightened bunch we NZers are. There have been some great arguments for and against, however this has been sullied by a great number of derogatory comments too. The reality is that National and Labour philosophies and practice are not significantly different. I find it amazing that some people actually believe either Clark, Cullen and co actually want to hurt NZ, just as others claim Key & English have the same goal, depending of course upon which end of the political spectrum you inhabit.

The problem is that for both Labour and National is that for far too long we have endured a "business as usual" approach, when NZ is mired in poor infrastructure and significant social problems. We need vision beyond the tax cut lolly scramble. I am a long-term Labour voter, but if Key is genuine about real infrastructure development, then I would happily vote National. Lets have the major parties trying to outbid each other in how they will develop NZ's capacity to compete in the world and get products and services to everyday NZers homes, places of work and businesses as rapidly and efficiently as possible.

Richard.T. #87 05:26 pm Jan 28 2009

I reckon Nationals borrowing proposal has merit. We need to alter the current Labour government plot which, up until recently, was working well. Unfortunately, in a short space of time, world commodity prices for food oil etc have gone thru the roof in conjunction with the sub prime drama in the USA and its associated fallout affecting the world economy. Whatever government we end up with must alter our thinking and planning to counter as much negative effect on our economy and incomes. The current recession should, by all accounts, be with us for a least another 12 months or so before we can see improvement. If it means borrowing offshore to help the tax payers and their families, I am for it. Particularly if the borrowings are used to continue infrastructure work that is already overdue. The NZ taxpayer has contributed heavily to the governments war chest for a number of years now. Lets put that collateral to good use now to help us all through the tough times.

Expat #86 05:26 pm Jan 28 2009

Tax cuts create jobs, on the proviso that the cash is invested into productive areas of the economy. Jobs create further tax revenue for the government. People who deny this fact and accuse people of voting out of greed should perhaps have a look at the performance of the Irish economy, or refer to research by the NZ Institute of Economic Research (hardly an extreme right wing organisation).

The margins for Sovereign debt are extremely low and anyone that compares such borrowing with terms they have heard in the news like "sub prime" are comparing apples with helicopters.

Allowing competitors into an area like workplace insurance where the ACC has a monopoly is smart, why oppose it based on idealogy? If this provides a competitive option to the thousands of NZ small business who employ people then on what basis can you argue this so-called privitisation?

I work in the infrastructure industry and see first hand, on a daily basis, the social benefits of investment in this sector. I also want to return back to NZ, but simply cannot afford to under this current regime - so perhaps "Murray" you will get your wish...while many more people vote with their feet and leave every day.

Travellerev #85 05:26 pm Jan 28 2009

John Key is not a stupid man. John Key is a banker. John Key knows about money and how the banking system works. If you want to know were hit loyalties lie then look no further. It would be very stupid indeed to borrow more money in the current economy for the average Kiwi. We don't need more debt we need to get out of it. With food and oil prices rising we need to stay within our means. If you are a banker however it makes perfect sense. If you want to know about fractional banking (the current banking system) and about the History of banking and bankers you should watch: http://aotearoaawiderperspective.wordpress.com/interesting-videos/documentaries/what-is-money/ and http://aotearoaawiderperspective.wordpress.com/interesting-videos/documentaries/the-money-masters/

Tim #84 05:26 pm Jan 28 2009

Now tell me something, especially all of you who are anti-government debt, Did you ever buy a house by cash?

Sounds silly, you bet. Unless you are swimming with cash, of course you will have some sort of mortgage. If all of us have to pay them with cash, most probably we can't afford any house, right? So tell me, is this a reckless spending then??

No, because you are putting a roof over your head. And the risk is small enough as land value surely appreciate over value and thus diminish the risk of mortgage lending in the long term.

There is two side of the same coin. A carefully managed lending can in fact be a successful financial management strategy.

Yet our dear simple minded Labour govt is convinced there is only one viable strategy - pay everything by Cash. Including billion dollar projects - cash is the only way to go!

Yeah, it's great if they are looking after our grocery budget, but one pill doesn't cure all, Labour.

Thanks a lot, Labour. While over half of New Zealand is struggling with cost of living and spiralling mortgage rate, they happily spend on big ticket items with what is essentially is your cash (though they do not seem to think that way).

Wal #83 05:26 pm Jan 28 2009

some vison you have sean, what are they? national policies??? all nicked from labour to win the election..what a ploy!! after they will spent the kitty, will borrow for chumps profit, will run new zealand like a grocery store..mrs thatchers vison..and when there is no borrowing anymore..sell all our assets, kiwibank, airports, rail and what have you...and then, cut kiwisaver and steal that too..remember maldoooons coup on pensions?? o sean you keep dreaming. but i am not saying labour has it all going right..but i feel more at ease with the devil i know then the devil i don't, but actually do!!!

ShockedofBOP #82 05:26 pm Jan 28 2009

I can't believe after reading all these comments at the lack of information people have in this country about how a Government works. It seems most of you believe the propaganda that you are told by your politicans. Amazing.

Fact - tax cuts will make NZ wealthy again. WHY? Because it costs a Government more to give it back to you via working for the families, than it does to just let you have the fruits of your labours in your back pocket. Why you all think that Labour have been generous to us is simply CRAZY.

We have slipped down the OECD tables in almost everything despite the PM telling us she will put us in the top 10.

Why is it that many countries in the world have flat taxes to protect their citizens from greedy politicans from ALL parties and Kiwis are still happy to work 50 hour weeks and get over 40% of their pay talen off them? Are you all mugs?

It's pure ignorance that "free market" policies have failed worldwide. Where is this the case? Much of the developed 1st world is booming due to the citizens being allowed to choose for themselves and have more take home income. Remember this, you voted for Government that took away your choice where to send your kids to school, who banned you from punishing your own children, who increased taxes, who banned organisations from campaigning against them and who lied repeatedly about their own spending....

Surely enough is enough? Kiwis can't have that short memory to actually think this lot can continue to ruin us for 3 more years. National don't have all the answers, but nobody does. But they are far better qualified to discuss the economy than Clark/Cullen.

CJH #81 05:26 pm Jan 28 2009

The thing we all know for sure is that Key - a well regarded financial figure knows a lot more about this than Michael Cullen - a history lecturer.

This borrowing is far more preferable than having a Government take it off us in taxation - and if we are taxed less, the economy will boom (like it does in Ireland/Slovakia/Czech Republic) and so debt will be paid off quicker.

Don't believe Labours lies, they will say anything to keep their hands on our money.

Peter #80 05:26 pm Jan 28 2009

God defend New Zealand because no one else will. It is a appalling that National is using New Zealand's economy as a vote buying tool, are we to see the Bush Tax Cuts in New Zealand?

FOMac #79 05:26 pm Jan 28 2009

Why would the Nats borrow for infrastructure at the same time as lowering taxes? This doesn't make sense. Lowering taxes is always a badly maneuvered PR move. Why not keep tax rates as they are and not borrow/borrow less?

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