Justin Giovannetti over at The Spinoff has a column titled "How New Zealand learned to stop worrying and love government debt." I'm quoted in it, but I haven't stopped worrying or started loving government debt. Taking on debt during a crisis is necessary when that's needed for crisis response. Its being necessary doesn't mean you have to love it. But the government has gone rather past that, piling in lots of additional spending unrelated to the pandemic. I suppose folks who think tax is love recognise that more debt is more future taxes, and so figure that debt is also love. I agree with Cameron Bagrie's concerns about paying the thing off - especially when the debt is larger than it needs to be because the government has not kept other spending in check, and when that extra spending
Eric Crampton considers the following as important: pandemic, Public Finance, shamubeel Eaqub
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Eric Crampton, chief economist at the free-market think tank the New Zealand Initiative, said while he shares some of the opposition’s concerns about new spending, the country is entering this economic crisis from a good position.“The rest of the world has gone absolutely crazy and either we’re sane or staying sane longer than anyone else,” he told The Spinoff.“Throughout all of New Zealand’s recent history all governments have maintained reasonable debt levels. There have been problems like the Christchurch earthquake, they run up a deficit and then they get it back in line. You don’t have those big structural deficits that are hard to fix,” he said.Crampton said the government’s current plans, for a debt half the size of the country’s economy, is about as large as New Zealand should go. Anything bigger risks possible trouble in case the economic situation worsens or natural disaster strikes.Cameron Bagrie, the former chief economist at ANZ, said that New Zealand needs to keep a “squeaky clean public debt” because of the country’s small size and high private debt levels. However, he says the response to Covid-19 was the right one.“The government needed to go big, leaning on the government balance sheet is the best response in the near-term. I have two concerns. I don’t think we have a well thought out economic plan on the other side and I think people will get increasingly concerned about how we’ll get debt down,” he said.According to Bagrie, his biggest concern is that taxes will need to go up to finance debt repayment in the future. It could be a defining question for the coming election. National under Muller will promise to do a better job of managing the books and keeping taxes low. It’ll be difficult for Labour to promise the same spending restraint, which could mean less infrastructure investment in the coming years, he said.
Shamubeel Eaqub, an economist who is respected by many on the political left, said Crampton and Bagrie are just wrong. New Zealand doesn’t have a debt problem, he argues.“Not only can we handle the debt that we’re planning to borrow, but we can take on a lot more if we need to. I’m not sure where this idea comes form that we’re so small we can’t borrow money. Some people are stuck in the 1980s when it comes to interest rates and borrowing,” he said.Countries like Belgium and Portugal went into this economic crisis with public debts larger than 100% of GDP and are looking to borrow more, he said. Nearly any ranking of advanced economies has New Zealand as one of the least indebted countries in the world for decades to come.Don’t look at charts that show debt approaching the same level as 1992 and freak out, according to Eaqub. “The world is different now,” he said. “Banks will look at us and see a debt to GDP ratio of 55% while Belgium is at 150%. Who do you think they’ll want to borrow to?”
Secondly, plan a future debt trajectory. Much current debate surrounds the eventual taxpayer cost of massive public debt increases, perhaps rising from 20-50% of GDP. As with the post-WWII debt response, this will need to be brought back down, but more slowly than after the GFC, for example.Public debt increases are global, and New Zealand will not look like a bad international credit risk for the foreseeable future. Plus, with interest rates almost certain to remain low for years, the government’s debt servicing costs have never looked better. Nevertheless, a credible plan towards lower debt is essential if we are to be well prepared for the next crisis – as we were for this one.