Government gives itself more wriggle room on debt

Finance Minister Grant Robertson. Photo/File.

The Government this morning announced that it will shift its debt target from a single figure to a percentage range.

Finance Minister Grant Robertson explained the Government is looking at a range of around 15 to 25 per cent of the GDP.

"Essentially, our current 20 per cent target falls in the middle of the new range that will exist from 2021/22 onwards," Robertson said in a speech this morning to the Craigs Investment Partners investor conference.

The move potentially gives the Government more scope for spending in its second term - and policy promises in the 2020 campaign.

This would give the Government wriggle room to spend more - potentially up to $15 billion - based on the additional 5 per cent of GDP available to them.

Alternatively, it could opt to spend a little less and aim to further pay down debt.

"Grant Robertson has been backed into a corner by allowing the economy to slow, over promising and making poor spending choices. Now, instead of a fixed target Grant Robertson has lifted the debt limit by 5 per cent. That loosens the purse strings by tens of billions of dollars.

National Party finance spokesperson Amy Adams said the move was an admission of defeat on fiscal responsibility.

"This is a blunt admission the Government can't manage the books properly, it is not wriggle-room. This makes the fiscal hole look like a puddle," she said.

"This decision will mean billions of dollars more debt because the Government can't manage the books properly and wants to spend up on big wasteful promises in election year."

But Robertson said the move to a range reflected the fact that circumstances could change over time and did not necessarily mean moving to the outer limit.

"A range gives governments more capacity to take well-considered actions appropriate to the nation's circumstances," he said.

"It establishes boundaries within which debt is kept to sensible and sustainable levels and where fiscal choices are driven by impact and value," Robertson said.

"For example, a government may choose to move higher up the debt range to combat the impact of an economic recession, or where there are high-value investments that will drive future economic dividends.

"At other times it may be prudent to reduce debt levels to the lower end of the range to provide headroom for future policy responses."

Robertson reiterated the Government's commitment to fiscal responsibility and said he could confirm it had met its self imposed Budget Responsibility rules in the 2019 Budget to be delivered next week.

The Government has staked a lot on its first "wellbeing" Budget to address critics on the Left.

Economist Ganesh Nana this week warned that the Government was nearing "the last throw of the dice" if it wanted to be truly transformational - following backdowns on the capital gains tax and radical welfare reform.

He urged the Government to relax its fiscal restraints and suggested Crown debt at as much as 30 per cent of GDP would not be excessive compared to international peers.

"This is a start," he said. "The move to a range makes more sense from an economic perspective."

But ACT leader David Seymour condemned the move.

"A responsible government would get wasteful spending under control before it borrowed more and left more debt, and therefore higher taxes, for our children and grandchildren," he said.

Robertson said the 15-25 per cent range was "consistent with the Public Finance Act's requirement for fiscal prudence, but takes into account the need for the Government to be flexible so that it can respond to economic conditions."

He said the Budget next week would not be "simply the same old Budget repackaged with softer edges and brighter colours".

"You will see a Budget that is new, with a more structured approach and a new, explicit emphasis on what we want to achieve for the long term for our country.