Finance Minister Grant Robertson to keep close eye on interest rates following Budget announcement

Source: 1News

The Finance Minister is keeping a close watch on interest rates as he lays out his spending plans in his fourth Budget.

Grant Robertson told Q+A that rates were still within acceptable range, but that it remains an issue they have to monitor.

“Well, the forecasts in the Budget show that it will spike up a little bit — around about 2.4% — before coming back down again. I rely on those Treasury forecasts," he said. 

"That's still within the Reserve Bank's 1% to 3% band, so that's manageable in the New Zealand economy but it's one of the examples of the uncertainty that emerges from Covid - no one can be completely sure."

He says the US has seen "a bit of a spike" in rates, which "looks a bit like pent-up demand". 

"The question is — will that last any longer? So at the levels forecast, that's manageable for us, but clearly, it's an issue which we have to keep an eye on."

But Robertson warns that it’s not just his Budget New Zealanders need to keep an eye on.

“We always want to make clear to New Zealanders that when they borrow money at very low interest rates, there is the possibility — depending on the kind of mortgage they've got — that those rates will increase.

"We are talking historically very, very low rates, so even the increases we're talking about still put ourselves in a band that is low relative to our history. But clearly, New Zealanders who've taken on a lot of debt privately need to know that the possibility exists that those rates will rise."

National’s Shadow Treasurer Andrew Bayly says there should be a greater focus on growing the economy to help pay for the debt the Government is incurring.

“I'm not worried about the level of debt we've incurred under Covid. What I am worried is that Mr Robertson thinks it's fine to basically double the debt from where we are to now over the next three to four years so we're going to go from $100 billion to $200 billion - a big figure." 

Bayly says the interest - $2.5 billion - is "nearly the cost it takes to run New Zealand's police force, which means we're diverting money away from frontline service".

"Every day, we borrow $110 million - yesterday, we borrowed $110 million; tomorrow, we're borrowing $110 million. That is a lot of money."

However, former Greens co-leader Russel Norman says the focus on Government debt is misguided.

“The Reserve Bank created a whole bunch of money during the Covid recovery which it handed over to the Government, so the Government now owes the Reserve Bank all of this money, right? But of course, who owns the Reserve Bank? It’s the Government.

"The idea that we should crucify our spending on climate change or poverty alleviation or anything because we’re concerned about paying back the debt is just completely absurd." 

Norman says even if the Government "leave[s] it on the books," the interest paid on the debt will go to the Reserve Bank.

“The Reserve Bank literally pays a dividend to the Government on the profits it makes so it would just be cycled back to the Government," he said. 

“The idea that we should really be worried about this money we’ve borrowed from the Reserve Bank, I think, is patently absurd and other governments all around the world obviously aren’t worried about it."