Could NZ write off all its debt? What business leaders think

Jim Bolger. Photo / Claire Trevett

As New Zealand's sovereign debt mountain grows, so too do calls to simply write it all off.

The most prominent advocate for what's known as Modern Monetary Theory (MMT) is former National Party leader Jim Bolger who has argued that we should cancel our debt.

"Since most of this money we're spending now has just been created by the Reserve Bank, its owed to nobody, we should look seriously at writing most of it off," Bolger told TV3's AM show last month.

Reserve Bank Governor Adrian Orr has pointed out the Reserve Bank buys government bonds on secondary markets rather than directly from the Crown.

The purchases are retained on the central bank's balance sheet with the assumption (and expectation of global financial markets) that it will be repaid by the Crown.

On that basis any decision about repaying it — or not — rests with the Government.

For the record, Finance Minister Grant Robertson has ruled out any prospect of a sovereign debt write-off.

And for the most part, business leaders aren't buying into the idea either — although opposition was not as overwhelming as it might have been in previous years.

The Mood of the Boardroom 2020 survey found just 20 per cent of respondents agreed with Bolger that it was a viable option.

Just under half (47 per cent) were opposed. Another 33 per cent said they were unsure.

Those against were certainly emphatic with their opposition.

"The road from central bank monetisation of government finance leads to Zimbabwe and Venezuela," declared Roger Partridge, chair of The NZ Initiative.

"Social credit style craziness," said an investment firm boss. "If that worked then just borrow $1 trillion and do the same."

"Unfortunately, Mr Bolger doesn't understand much about the way the Reserve Bank works. Most government debt is owed to banks, insurance companies, KiwiSaver accounts and others who need the debt repaid." said a banking sector chair.

There was notably not much more enthusiasm from those who said they were unsure: "There is no such thing as a free lunch, so someone pays eventually!" said Ballance Agri-Nutrients chief Mark Wynne.

"Sounds appealing but there must be a catch," said the boss of legal firm.

With the prospect of up to $100 billion in new Government debt being funded on to the Treasury books by the Reserve Bank's Quantitative Easing programme, the calls to consider MMT aren't likely to down anytime soon.

But business leaders — even relatively liberal ones — are going take more convincing it seems.

As Simplicity founder and chief executive Sam Stubbs puts it: "Debt is debt and it needs to be repaid."