Budget 2022: Robertson announces new debt rules for Govt

Finance Minister Grant Robertson has committed the Government to new limits on borrowing, pledging to cap its debt levels.

The move comes after two years of pandemic spending and with National leader Christopher Luxon repeatedly accusing the Labour Government of fuelling inflation through government spending.

Robertson announced new rules on Tuesday morning ahead of the Budget later this month, bringing in a debt ceiling, surpluses to be kept within zero to 2% of GDP and a new debt measure.

Debt ceiling

Robertson said the debt cap would "ensure New Zealand maintains some of the lowest Government debt in the world".

The 30% cap "is a limit rather than a target, and again is flexible enough to allow a buffer against short term shocks, while providing greater room for productive investment."

He said that the interaction of the two new fiscal rules "means that the additional debt not be used for day-to-day spending as that is limited by the surplus rule".

New Zealand currency.

"This leaves the debt ceiling to guide capital investments needed in infrastructure to keep our economy moving," Robertson said.

In light of "current inflationary pressures and capacity constrains", the multiyear capital allowance would not be increased for the Budget this year, Robertson said.

Debt measure

Treasury recommended New Zealand uses a measure "closer to the international norm". It includes government assets such as the Super Fund and liabilities which includes debt held by other Crown agencies.

"The new measure gives a headline net debt figure about 20 percentage points lower than the current one, but it is more internationally comparable," Robertson said.

Surplus

"Once we reach surplus, the new fiscal rule will see the Government committed to maintaining a small surplus in the range of zero to 2% of GDP over time," Robertson said.

"That means as we enter the new-normal, the spending required to operate Government services won't be adding to Government debt. There will be allowances for significant shocks and it is an average percentage so as to allow additional investment in a particular year if required.

"The surplus target will also be the primary rule that controls our spending decisions and will require a careful and balanced approach," he said.

"The surplus means current spending is paid for from current revenues. It means the current generation is paying for its own consumption, taking pressure off inflation, and putting the country in a better position to invest in infrastructure for future generations."

Budget 2022 is to be released on May 19. There is set to be a one-off $6 billion boost, focusing on the health system and climate change.