Red Alert

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Budget FAQs

Posted by on May 11th, 2011

Some quick answers to a couple of good questions about debt and Kiwisaver from recent Facebook inquiries:

Q:  Has NZ’s debt really cimbed from $300 m per week to $380 m per week?  Why?

A:  The difference between $300 m and $380 m is the fact that NZDMO is in the market issuing more debt securities than it needs beacuse demand is good and prices low. In other words it is bringing forward next years borrowing, and that is all.  Of the $300m about half is rollover of exisitng debt.  So next year it can say it reduced the borrowing, beacuse it will have pre-borrowed some of what it needs already.

Q:  How much will the cuts to Kiwisaver Key announceed today save?  $40m a year ?

A:   Kiwisaver cost savings are unknown untill policy is made clear in the Budget.  The Member Tax Credit costs about $880 m per year.  Half that would be ($440m pa) would be  ”saved” to Govt if MTC halved to $10 per week.  But that ‘saving’ but would have to be offset against lower private savings from weaker incentices.   That is a problem beacuse private debt is huge  – in fact 90% of NZ’s total international debt is private.   Govt debt is only 10% of the problem.

Q:  Is it true that Dr Cullen’s books in 2008 showed a fiscal surplus in 2008?

A:  Yes   Dr Cullen’s 2008 books showed a net debt (incl NZSF assets) to GDP ratio surplus of 7.6%   In other words we were in positive CREDIT, though the GFC meant a forecast net deficit up to around 2% of GDP.    Gross debt to GDP is ow 34%and climbing under National.  It is hard to believe that National still gripes and tries to shift blame.   Time they manned up and took some responisbility for their own choices – like $23 Billion of tax cuts over 4 years in Budgets 2009 and 2010.

Q:  Are our incomes catching up with Australia like National promised?

A: No, we are going backwards.  When National took office in 2008 the gap was about 30% of GDP per capita   It was 34.7% and growing last time I checked.

Bottom line – NZ’s problems are serious and need serious fixes, but don’t buy the panic line that it is only public debt that matters.   Responsible fiscal management, including reducing debt across the cycle, is essential- but it is not the ONLY thing that matters.  We have to grow jobs, exports and savings at the same time as reducing debt.  And we have to build a country that is fair, caring and ready to take on the world, not slide into two NZs – one for the haves and another for the have nots.

PS happy to take your budget questions – message me on http://www.facebook.com/david.cunliffe.labour.