The Government could have $140 billion more debt on its books than it does and still have a net debt-to-GDP ratio that was average for an advanced economy.
And right now it can borrow at interest rates which are very low by historical standards.
So why doesn't it fill its boots, given all the unmet need around?
It is a fair question, but not a rhetorical one.
There are four reasons why the relevant question as the Budget approaches is not whether the Government could fund this, that or the next thing by borrowing. Yes it could — but rather, the question is whether it is wise and fair to do so.
The International Monetary Fund's annual Fiscal Monitor, released last month, tells us that among advanced economies, the average ratio of net general government debt to GDP is 75 per cent.
In New Zealand, central government debt is a striking outlier at 21 per cent of GDP. Add local government and you might get to 25 per cent. The 50 per cent of GDP gap between us and the 32 other advanced economies listed would be more than $140b.
The first reason to be wary of ripping into that "fiscal space" is the one invariably cited by the Treasury and repeated this week by Finance Minister Grant Robertson: the shock absorber value.
When the global financial crisis hit, Alan Bollard was able to cut the official cash rate by 5.75 percentage points. If a similar shock hit now, Arian Orr is only 1.75 percentage points away from zero.
So when the next crisis comes — and it will — fiscal policy will have to do more of the work. It was helpful for the previous Government, loath as it was to admit it, to have inherited a very low level of debt to cope not only with recession, but also the fiscal costs of the Canterbury earthquakes.
The second reason, long noted by the ratings agencies, is that while New Zealand governments have been highly debt-averse, the same cannot said for Kiwi households.
Households' debt-to-income ratio is at an all-time high and the saving rate is negative.
And much of that debt represents the imported savings of foreigners. New Zealand banks' overseas debt is equivalent to nearly a third of their loan book.
In addition, a majority of government bonds are held by non-residents. In another global financial crisis, the risk of being unable to roll over existing debt as it matures is greater than it would be if the debt was held by New Zealanders.
Health & super
A third reason for being cautious about ramping up government debt is that not all of its obligations are on the balance sheet.
In particular, there is the future additional cost of superannuation and health spending as the population ages.
The IMF has had a stab at calculating the net present value (NPV) of those increased costs out to 2050. We can think of that as how big a pot of money we would need to have set aside, earning compound interest, if those liabilities were fully funded.
It reckons the NPV of the pension spending increase out to 2050 is 54 per cent of GDP. That is $150b in today's dollars, only partially offset by $38b in the New Zealand Superannuation Fund. The NPV of the expectable health spending increase is even larger, at 66 per cent of GDP.
When those two factors are accounted for, New Zealand is no longer a fiscal outlier, but sits in the middle of the range for advanced economies, between Germany (with its challenging demographics) and Ireland (with its debt crisis legacy).
Which brings us to the fourth reason to go easy on the public borrowing: inter-generational equity.
Even with low levels of public debt and exceptionally low interest rates, servicing the debt still costs $4b a year, or about 5c in each dollar of tax. Future taxpayers face the cost of an ageing population. To add a hefty interest bill to that burden at a time when most baby boomers are still working seems unfair.
Unless, that is, the borrowing is required to fund assets which will benefit the future taxpayers who will have to pay for it.
This would include, for example, school buildings (preferably of the non-leaky variety) and spending to support a better-late-than-never supply response to the housing crisis. Hospitals that don't constitute a health risk would be a good investment.
Transport infrastructure, too, if well chosen. As ANZ chief economist Sharon Zollner puts it, "enabling workers to commute efficiently to where they can be most productive, from a dwelling in which they can afford to live, is an obvious win for productivity." This is all capital expenditure, not operating spending.
In a speech on Tuesday, Robertson said the May 17 Budget would deliver a surplus. That is assisted by positive surprises on the tax revenue front, some increased taxation at the expense of landlords (or their tenants) and about $700 million from "reprioritisation" of already budgeted spending.
"Health and education will get long overdue boosts to their capital and operating funding to deal with cost pressures and ensure that our hospitals and schools are fit for purpose," he said.
"Housing initiatives will receive a boost on top of the $2b we announced in the December mini-Budget for KiwiBuild."
The Government remains committed to — crucial caveats — a "sustainable" surplus "across the economic cycle". "We will not generate artificial surpluses by underfunding essential areas such as health, education, and infrastructure."
Robertson also reaffirmed the Government's commitment to reducing the net debt-to-GDP ratio to 20 per cent by 2022 — not a big stretch when it is 21 per cent now — and to maintaining government expenditure within the recent historical range of spending to GDP, which has averaged around 30 per cent over the last 20 years.
If this is a fiscal straitjacket, as its critics say, Robertson has no plans to pull a Houdini.