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English should talk to his leader about debt

Thursday, 13 March 2008,

13 March 2008

English should talk to his leader about debt

Bill English is clearly worried that his leader’s pro-debt policy stance is hurting National’s economic credibility.

“I’m pleased that my four tests seem to have focused Mr English’s attention on issues wider than just tax cuts,” Finance Minister Michael Cullen said.

“But I am amused that after years of being accused of being too focused on debt reduction and too conservative on fiscal policy, Mr English now wants people to believe that the government has not focused on debt enough.

“These are the facts:

- Gross Sovereign Issued Debt excluding settlement cash was $36.7 billion in 1999 when Bill English was Finance Minister
- Gross Sovereign Issued Debt excluding settlement cash was $30.9 billion at the end of the last financial year (30 June 2007)
- Crown debt has fallen from over 35 per cent of GDP when Bill English was Finance Minister to less than 20 per cent of GDP today
- Net debt has fallen from $21.4 billion to $4.4 billion
- Any forecast rise in borrowing, is consistent with maintaining prudent debt levels at around 20 per cent of GDP over the medium term

“In the 2008 Budget Policy Statement, I clearly said that I would meet the borrowing test by maintaining my commitment to keep debt levels around 20 per cent of GDP (excluding settlement cash) even after the delivery of tax cuts. We have over-delivered on that goal in recent years, and as I said in my speech last week, when a slowdown occurs we should all expect debt to rise.

“Mr English’s problem is that when the world economy was still growing strongly in 2006, John Key went on the record saying he would increase debt to 25 per cent of GDP – a move that would cost $700 million a year in extra finance costs alone. If a downturn occurs and debt rises, Mr Key’s fiscal policy would take debt closer to 30 per cent at least.

“Bill English admitted on Newstalk ZB last week that he would borrow for tax cuts, and then had his staff try to prevent reporting of his statements. He then claimed that a ‘correction’ was issued, which was not the case as the reporters involved stand by their report in its original context.”


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