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Insights 9: 22 March 2024
NZ Herald: Roger Partridge on how to rein in an activist Supreme Court
Webinar event: Launch of our new report 'Cabinet Congestion', with Hon Stuart Nash
Newsroom: Dr Oliver Hartwich on the importance of this year's European Parliament elections

Navigating the fiscal hole
Dr Oliver Hartwich | Executive Director |
As the debate around New Zealand’s public finances intensifies, with talks of fiscal holes and prudent debt levels, it is time for a frank discussion about the country’s long-term fiscal sustainability.

In his exit interview on TVNZ’s Q+A programme, former Finance Minister Grant Robertson’s suggested that New Zealand can and should sustain higher government debt levels than the current 30% of GDP target.

Robertson’s proposal is concerning. It disregards the fact that on his watch, while the permissible debt level was technically lifted to 30%, changes in debt calculation methods masked an even higher increase. This shift in goalposts has obscured the true extent of the increase in government debt now considered acceptable.

Given the sorry state of public finances, fiscal consolidation is essential. The Government must cut spending to reduce deficits and start lowering debt levels. Beyond that, New Zealand must also determine a prudent long-term debt target.

The previous government’s changes were unwise. New Zealand should aim for much lower public debt levels than most other countries. 

New Zealand’s many vulnerabilities necessitate such fiscal discipline. As a small nation prone to costly natural disasters, maintaining a lower debt burden is crucial for resilience. The relatively high cost of disasters as a percentage of GDP underscores the need for adequate fiscal buffers.

Moreover, New Zealand’s small population, its deeply negative net international investment position (see Bryce Wilkinson’s article below) and persistent current account deficits make it more susceptible to external shocks.

Higher debt levels could also increase the perceived riskiness of investing in New Zealand, leading to higher borrowing costs and reduced access to affordable financing.

To reassure international investors about the long-term sustainability of public finances, New Zealand should lower its long-term debt ceiling to pre-change levels – or even lower, considering the previous government’s changes to the accounting method.

As Grant Robertson exits politics, it is galling to be lectured by him about an alleged need for even more debt. His legacy of profligate spending and the increased public debt he leaves behind is something New Zealand must now address.

The country needs to cut government spending and reduce debt to lower levels as a buffer against future shocks … and maybe also to protect against future governments opening the spending taps as widely as Robertson did.

New Zealand’s fiscal future depends on making prudent decisions today. To navigate our fiscal holes responsibly, the new Government should not be digging deeper, but chart a course towards long-term sustainability and resilience by reducing both expenditure and debt.

The Mystery of the $52 billion gift
Dr Bryce Wilkinson | Senior Fellow |
My research note last week highlighted a massive mystery. Between 31 March 2009 and 30 September 2023, New Zealanders spent $158 billion more overseas than we earned on current account.

We needed $158 billion of incoming capital to fund that deficit spending. We would expect our net borrowing overseas to be of a similar magnitude.

However, Statistics New Zealand could only identify a funding inflow of $106 billion. SNZ does not know where the other $52 million came from. Neither do we. SNZ attributes it to “errors and omissions”.

My research note, “The mystery of the $52 billion gift: Does New Zealand have a fairy godmother”, documented this in detail.

This mystery raises some concerning questions. Is New Zealand’s true indebtedness much higher than we think? Are the deficit estimates too high, or have we borrowed a lot more than SNZ has been able to measure?

The relatively small $32 billion decline in New Zealand’s net international investment position is a related puzzle. This position measures how much more we owe overseas than overseas owes us. The $32 billion decline accounts for only a third of the $106 billion of funding SNZ knows about. Where did the other $74 billion come from?

It turns out that $27.6 billion of the $74 billion came from capital inflows largely attributable to insurance payouts by global reinsurers. These can be triggered by major natural disasters, such as the Christchurch earthquakes. Obviously, this is not a reliable long-term funding source.

The remaining $46.6 billion of the $74 billion came from valuation gains, such as the recent rise in global interest rates that reduced the market value of our overseas debt. We cannot count on such favourable valuation gains in future.

The mystery became more prominent after Covid-19, when New Zealand's current account deficits ballooned due to the loss of tourism and international student income. Almost half of the $62 billion in deficits from December 2021 to September 2023 was 'funded' by the mysterious "errors and omissions."

Interestingly, Australia’s statistics don’t have the same issue. This mystery is specific to New Zealand.

My report calls for SNZ to investigate and resolve this statistical discrepancy. New Zealand may be in a much deeper hole of overseas debt than we realise. Figuring out this $52 billion mystery should be more of a priority.

You can download Bryce Wilkinson's research note The Mystery of the $52 billion gift: Does NZ have a fairy god mother?  and listen to our podcast with Bryce here.

A remedy to division
Benjamin Macintyre | Research Assistant |
We live in divided times. Where once there was disagreement over solutions, today there is disagreement over facts.

The proof is everywhere. An article that’s in defence of anything the private sector does? You’re a shill who works for Atlas, an organisation so secretive you can google them.

But what if you write something vaguely supportive of government intervention? Take your Leninist ideas somewhere else, tankie!

Most people want the same thing: a world that will be better to live in in 10 years' time than it is today.

We need to find a common cause to unite us. Something that all political stripes can agree on.

For my final contribution to our Insights newsletter, I have just the thing.

To start mending the political divide, it is time for us all to finally agree on one of the great issues of our time:

Rugby league is the greatest sport in the world.

Now, some of you may be raising your eyebrows. But, if you allow me to explain, you’ll see that there is something for every political persuasion to like about rugby league.

If you’re a social democrat, firstly congratulate yourself for being right about everything ever.

Then, consider that league is the original working-class game. Rugby League was founded by working-class people in the north of England as an act of rebellion against the Victorian values that continue to plague its rugby union cousin.

If you’re a conservative, you’re all about pulling yourself up by your bootstraps, not getting anything for free, and getting on through sheer hard work.

Did you know that rugby league games are often settled simply by whoever is most willing to run, tackle, and work the hardest? There are no lucky winners in league and no free giveaways.

If you’re a hardened libertarian, then you’ll love how English rugby league teams like to stick as many sponsors on their shirts as possible. The free market wouldn’t have it any other way.

Finally, if you’re a centrist, then maybe it’s time to climb down from the fence and form a firm opinion on something for a change. Also, watch rugby league.

It should now be obvious that rugby league is not just a sport. It’s the potential great unifier of our time. From this starting point, we can build a better, more collaborative future.

It’s time to leave division behind. It is time to bravely stand up and jointly cry:

Up the Wahs!

We farewell Ben as he moves on from the Initiative. We wish him well for his new adventure.

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