Inside Money: 380 million debt tricks - see how they work
9:30 AM Tuesday Jun 14, 2011
Labour Party finance spokesman David Cunliffe. Photo / Mark Mitchell
Did the government transform the country's rising, if over-stated, public debt into political capital?
Hell yes.
After relentlessly bashing us round the head with its '$380 million a week' line in the budget lead-up, the government did stifle opposition to its agenda.
And why not if you can get away with it?
Belatedly, the media and political opponents have picked up on the fact that the $380 million figure was inflated with some nifty "pre-funding".
Why, for instance, did it take until early June for Labour finance spokesperson, David Cunliffe, to pipe up on the matter when the information has been publically available for quite some time?
I'm sure I told you earlier. If not, I meant to, sorry I've been busy.
But as early as May 3 this year the Debt Management Office (DMO) revealed it was borrowing more than was immediately necessary this year - up to a maximum $20 billion.
The May 3 DMO statement says: "This decision has been made for three key reasons:
· The programme size is now much larger than the forecast cash deficit for 2010/11, enabling pre-funding in favourable market conditions.
· It reduces borrowing programmes in future years.
· It ensures that the market has continuity of supply by providing for average issuance of around $400 million a week for the next two months."
On May 19, to coincide with the budget, the DMO set out its borrowing program for the next few years, reiterating the $20 billion figure but projecting a return to debt reduction by the 2014/15 tax year, when we're going to, allegedly, pay back $2 billion.
I heard Cunliffe describe these DMO statements as mere "technical" press releases as if they would have been incomprehensible to the common people.
But even if that were true (it's not), isn't it the role of opposition to translate the 'technical' on our behalf?
OK, the government didn't discuss with us in advance whether we'd like to borrow a little ($5 billion) more but it was easy enough to find out when it happened.
The DMO website is wonderfully transparent, but only if you look.
Labour in opposition are hopeless. I expect good opposition, regardless of whos in power as we pay them enough and Cunliffe and Parker sound good, yet you rarely hear from them. Its not good enough.
The Nats were not, they used the $380 million a week figure again and again to scare people into accepting budget cuts as necessary. Now it is clear they were NOT necessary but ideological.
Governments issue bonds to provide a savings product for the wealthy/financial institutions. They don't need to do this as they are not financially constrained. They don't need to borrow to spend.
The NZ Government makes a political choice to roughly match bond sales with its budget funding requirements, but it doesn't have to. Why does it do it? Presumably because it is following old economic theory dating from the gold standard era.
It seems Bollard and most economists in NZ haven't caught up with how the world has changed since Bretton Woods failed.