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.