Robertson announces new debt range
The Government will scrap specific debt targets in favour of moving towards a target range, Finance Minister Grant Robertson has announced.
The current target, part of Labour’s Budget Responsibility Rules, is to reduce net debt to 20 percent of GDP by 2021/22. When that target is achieved, it will be replaced with a debt range.
Robertson did not specify what this was, but said Treasury had provided him with advice.
“At this point we are looking at a range of 15-25 percent of GDP, based on advice from the Treasury,” Robertson said.
“This range is consistent with the Public Finance Act’s requirement for fiscal prudence, but takes into account the need for the Government to be flexible so that it can respond to economic conditions,” he said.
Robertson made the remarks at a pre-Budget speech to the Craigs Investors Conference. He also said that Treasury’s forecasts, which are released alongside the Budget will show the Government on track to meet its Budget Responsibility Rules.
Still too low?
The Budget Responsibility Rules have been criticised for being unnecessarily restrictive on the Government and holding back Robertson from making vital infrastructure investments.
Last year, Newsroom reported the Government could choose keep debt at roughly 30 percent of GDP before frightening ratings agencies.
This would equate to an extra $35 billion worth of borrowing.
Robertson responded to some of these criticisms.
“For me it is a question of balance. We have made, and will continue to make, significant investments in our future, but we also know that the volatility of the world, be it economically or through natural disasters, biosecurity incursions or unexpected events, is never far away,” he said.
Robertson’s remarks today suggest the Government will push debt towards the bottom of the range in good times, whilst allowing it to rise during a recession or other crisis.
“For example, a Government may choose to move higher up the debt range to combat the impact of an economic recession, or where there are high value investments that will drive future economic dividends,” Robertson said.
“At other times it may be prudent to reduce debt levels to the lower end of the range to provide headroom for future policy responses,” he said.
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