Audrey Young

Audrey Young is the New Zealand Herald’s political editor.

English: Get used to the debt crisis

Finance Minister Bill English. Photo / Mark Mitchell
Finance Minister Bill English. Photo / Mark Mitchell

Finance Minister Bill English says people should get used to a regular sense of crisis over debt.

What the world was seeing in Europe and the United States was the end of the post-war model which was that when your income was not going up, you just borrow it.

"They are drowning in debt and there's only two ways to deal with debt," he told the ANZ Post Budget breakfast in Wellington this morning. "Pay it off or write it off."

"What's going on in both of those countries is it is growing and they are shifting it around. Those aren't solutions.

"They help in the short term but the long term solutions are multi-decade - 10 or 20 years.

"So get used to it. A regular sense of crisis is normal. It's going to be normal."

If Greece exited the Euro, then who would be next, he asked.

He said the Budget reflected what he believed was a balance that needed to be struck between ensuring New Zealand was "whiter than white" in debt markets where it was still one of the most indebted countries to foreigners in the world and on the other hand laying the platform to take advantage of the opportunities of being on the doorstep of the fastest growing economies in the world.

Referring to the student protest in Auckland yesterday, he said students who had protested against the Budget could get some coverage dragging a few rubbish bins around.

"They need some Greeks to show them how to do it."

Most people thought they had got "a pretty fair go."

The Budget tightened eligibility for student loans and requires higher rates of repayment for student loans.

Taking about the path back to surplus over the next three years Mr English said: "We're actually on a pretty moderate adjustment here. If you listen to some of the commentators you'd think that there was something dramatic going on. 'Dramatic' was Australia's last Budget and the second or third biggest fiscal contraction in the world - the biggest one they've ever had.

"The state of Victoria last week announced about 4000 redundancies in a civil service about the same size as New Zealand's. That would be the equivalent of New Zealand sacking over 10 per cent of its public service.

"So this isn't austerity. This is a pretty moderate containment of Government spend."

Getting back to surplus was not the ''be all and end all."

"But when you've got grumpy lenders they need to know that they'll get their money back."

Now the big issue for them was sovereign solvency "and you do not want to be one of those Governments where they start worrying about whether they'll get their money back."

The surplus just demonstrated a credible management of fast rising Government debt.

The most important thing was to get the economy moving.

The economy was slower than predicted because people's behaviour had changed and they were spending less and saving more to get their debt down.

That meant "less fizz' in the shorter term but it was the right thing to do in the longer term.

And while the current account deficit was forecast to double to $16.8 billion in 2016 at least it was driven by more investment and not driven by consumption as it had been six years ago.

At another post-budget function today, Mr English hit back at critics saying his Budget lacks any vision for growing the economy.

Speaking at a post-Budget business luncheon at West Melton, near Christchurch today, Mr English said some of his opponents were suggesting that simply setting a "big, bold target" would lead to growth.

"Well, that's just rubbish," Mr English said.

"You can't just pluck growth out of the air. You have got to earn every bit of it, and we are, which is the good news."

Considered and consistent sound decisions year after year was the way to achieve growth, Mr English said.

"It doesn't just come out of the sky."

Regular crises were now a part of doing business in the global environment, he said.

Mr English said there was no "whinge-fest" in New Zealand, and no sympathy for the likes of students protesting about changes to their interest-free student loans.

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on production bpcf04 at 20 Dec 2014 20:47:23 Processing Time: 471ms