The debt problem

Cameron Bagrie writes:

Net government debt looks to be headed well above 50 per cent of GDP and is on an unsustainable path.  

A lot of other countries are in a worse predicament, but they don’t carry the same level of private sector debt. 

The best way to turn an unsustainable debt trajectory into a sustainable one, and restore the Government’s war chest for the nest rainy day, is by improving New Zealand’s economic performance.   That is going to require an extensive economic shake-up not tinkering. 

I don’t think people realise how dire the situation will be.

Let’s say we spend $50 billion just on the crisis period.

Now let’s look at last year’s accounts. revenue of $87 billion. Let’s say tax revenues are down 15% or $13 billion. So income down $13 billion and the interest in the extra debt is likely to be $3 billion so even once this is over, may have a $16 billion structural deficit. Oh also add an extra $2.5 billion in benefits and you’re getting close to $20 billion.

Now if you run deficits of over $10 billion for say five years or more, then bang another $50 billion debt and so on.

A massive fiscal repair job is going to be required down the track. 

Don’t use Covid-19 as an opportunity to pursue a political spending agenda. Beyond improving our health capability and border controls, now is not the time to be cementing more money in baselines that will prove difficult to extract and unwind when needed.  Tough times demand tough decisions.

This is essential. Any extra spending beyond those two areas must be temporary. Locking in permanent spending increases will cripple our ability to recover.

Low quality ineffectual spending such as the free tertiary fees (which saw numbers actually drop) must be reviewed also. That money can do better in Vote Health.

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