Finance Minister Grant Robertson is actively looking at finding ways within the current Budget responsibility rules to signal more infrastructure investment, potentially as early as the December half yearly update of the Budget statement.
Robertson told Newsroom in an interview there was already room within the Government’s rule about returning net core Crown debt to 20 percent of GDP within five years of taking office, given net Crown debt had already fallen to 20.1 percent of GDP by the end of May and was $2.6 billion below the May Budget forecast.
I asked him if the infrastructure deficits in Auckland caused by the 10 percent population shock in the last five years should be treated like the GFC or the Canterbury earthquakes when considering the net debt track. The rules have an ‘out’ clause for such events and the previous National Government borrowed heavily to soften the blows of the GFC and the quakes. “Yes we need to continue to use the Crown’s balance sheet and we are,” he said.
The net debt track was forecast in the May Budget to be at 19.1 percent by the year to June 2022 (see chart below), which leaves some room to still be under 20 percent within five years of taking office, which would be September 2022.
The Government may also change Treasury rules which force the entire cost of a project to be recognised in the year of the decision, rather than the year in which the money is spent. That rule ‘front loads’ the often large cost of a project, therefore the inflating the early part of the debt track.
“And obviously the work we’re doing with both local government and the private sector on unlocking their investment within the economy as well. I think there’s a lot of scope.”
He denied the situation in Auckland was similar to the GFC.
“We have to be careful about invoking the clause that we have within our Budget responsibility rules that does allow us to vary those targets. I don’t think that’s the place we’re in,” he said.
“I still think there’s plenty of room for us to use the levers we’ve got now and work with local government and the private sector to get that investment going.”
Robertson went on overnight to talk with Corin Dann on Q+A to suggest he may tolerate a slightly higher debt track in the short term.
He was asked about NZIER’s suggestion the Government could be $2 billion over its debt forecast by the end of the forecast period if growth slowed from Treasury’s forecasts in the Budget of three percent-plus growth rates.
“Even if we did [go over the net debt forecast for 2022 of 19.1 percent], we would still have very good debt levels compared to the rest of the world,” he said.
He was again challenged on why the Government was sticking to its debt target when local economists such as Cameron Bagrie, Sharon Zollner and Shamubeel Eaqub have suggested the Crown’s balance sheet should be used to deal with infrastructure deficits.
New Zealand’s 10 year bond yield closed at 2.54 percent on Friday, well below the US 10 year yield of 2.86 percent.
Robertson again argued the Government was investing $10 billion more over the next five years than the previous Government, although almost $8 billion of that is in the New Zealand Superannuation Fund. Most of that will be invested overseas, although the fund is tendering to build two new train lines in Auckland.
Robertson also defended the Government’s decision to borrow outside the measures of core Crown debt by giving Housing New Zealand and NZTA the ability to borrow more in their own right, which Treasury criticised as adding unnecessary cost, because such off-balance sheet borrowing costs an extra $6 million per $1 billion of borrowing.
He said the borrowing vehicles were set up and used by the previous Government and were also criticised by Treasury.