His comments came during his address to the NZ CFO Summit which this year is being held virtually.
Bollard makes the salient point that while there has been considerable focus on the $50b the Government is borrowing to provide fiscal stimulus during the crisis, there has been little focus on an emerging "fiscal gap" caused by a reduction in taxation revenues.
"The politics are going to be extremely difficult for any sort of government," he warns.
"But there is a problem and we haven't heard much about reduced revenue."
The upcoming pre-election fiscal and economic update — pushed back to September 16 as a consequence of the decision to postpone the election — will likely give the first real insight into Treasury's view on the emerging fiscal gap.
Bollard makes the point that there will be big holes emerging on the revenue side with an expected reduction in corporate and personal income taxation as the economic impact of Covid-19 takes its toll. "We might have to think about some of the things ... New Zealand finds so difficult to to think about in the past like capital gains taxes of various sorts."
Another issue is the impact of reduced revenue on local authorities many of which are carrying substantial debt; as well as mounting private sector and household debt.
Asked what are the critical questions New Zealand voters should put to the political parties as we head towards the election, Bollard replied that first, the politicians should front up and tell New Zealanders how they plan to get New Zealand off what he terms "short-term ventilator support".
"We've just had the third job support extension. But we don't want to get hooked on that. We're going to need to get off that — how does that happen?" he asks.
"Then we need to be confronting them with these unfortunate, but very negative Government accounts, and how they get stabilised and eventually returned to a position where the next shock will come along. It will be different. But there will be more shocks."
There are not very appetising issues to thing about, but he stresses it is going to be slow growth and a very difficult Government balance sheet rebalancing.
He suggests the various tradeoffs required to pay down the Covid-19 debt could lead to quite a bit of generational tension.
The education of younger people is being impacted by having to stay home as a result of the Covid-19 pandemic. They will also find it more difficult when they come on to the job market into an environment where there are fewer jobs available and reduced career prospects. Career people will also be hit by the loss of jobs and expected earnings increases. Businesses may also be lost. Older people are taking a hit on their savings.
So, back to Bollard's question. Will the lost revenue be recovered from special taxes or special levies? Is it going to be recovered from inflation? "It's got to be recovered from somewhere and at the minute, the general feeling is, 'Well, don't worry, we won't have austerity because we didn't like that after the Global Financial Crisis'. But the way I look at it, we're going to have to have something to pay this back and austerity is also one of those possibilities."
