Controlling debt - fact sheet
28 May 2009
Controlling debt - fact
sheetTreasury estimates showed that without
policy changes, gross government debt would rise alarmingly,
reaching 48 per cent of GDP by 2013 and 70 per cent of GDP
– or about $227 billion – by 2023. That
level of debt equates to just over $45,000 for every New
Zealander. Put another way, it would represent $180,000 of
government debt for every family of four – equivalent to a
second mortgage on their home. Paying interest
on that debt would have cost the Government $13.7 billion a
year - more than is currently spent on the public health
system. Debt last peaked at more than 70 per
cent of GDP in the 1980s and it took almost 20 years of
tough decisions to bring it back to prudent levels.
Budget 2009 takes a number of actions to control
Slowing the pace of annual
operating allowance increases to $1.45 billion in 2009/10
and $1.1 billion in 2010/11. For following budgets, the
allowance will grow at 2 per cent a year.
Deferring personal income tax cuts scheduled for
2010 and 2011. Suspending automatic
contributions to the NZ Superannuation Fund.
These actions mean gross debt is
forecast to reach a maximum of 43 per cent of GDP in 2016/17
and to reduce to about 37 per cent in 2022/23.
The chart below shows what would happen if these
decisions had not been made. Gross debt would reach 70 per
cent of GDP in 2023 and continue to grow if the tax and
spending policies from the 2008 Pre-Election Update were
maintained alongside current economic forecasts.
In Budget 2009, the Government states its
long-term debt objective in “net debt” rather than
“gross debt” terms. This is set out in the Fiscal
Strategy Report. Gross debt will continue to be shown.
The Government believes a net debt indicator is
more accurate and transparent. This is because
it takes a wider view of the Crown balance sheet, including
the level of financial assets as well as gross debt.
A net debt indicator is more commonly used
internationally. Moving to a net debt indicator
also properly takes account of Debt Management Office assets
and Reserve Bank settlement cash in the debt measure. This
makes sense as they appear on both sides of the crown
balance sheet. The definition of net debt being
adopted differs from that used previously. It excludes
advances (for example, student loans) that could count as
“financial assets”. Advances are made for public policy
reasons rather than being associated with government
financing. This definition of net debt takes
into account only core Crown debt and financial assets (the
financial assets of the New Zealand Superannuation Fund are
excluded). Gross debt, excluding settlement cash and Reserve
Bank bills, is currently around 25 per cent of GDP.
The previous net debt indicator is around 2.5
per cent of GDP and the new net debt indicator is around 9
per cent of GDP. Over time, the difference between gross
debt and the new net debt indicator narrows because debt is
rising faster than financial assets.
See the full
release with graphs here.
© Scoop Media