Finance minister confirms $6.5b borrowed not on core Government metrics

The Government borrowed $6.5 billion creatively through Crown entities NZTA and Housing NZ which did not show up on core government net debt metrics, Minister of Finance Grant Robertson has confirmed.

However, he says the Government's books are in great shape to absorb such challenges.

The revelation followed comments by independent economist Cameron Bagrie supporting Stephen Joyce's election-campaign claim that Labour has an $11b fiscal hole, and that the figure could climb higher.

"There is a fiscal hole, and a softening economy is making it wider," Bagrie said.

"I don't like the term fiscal hole. Good policy should dominate over strict debt targets and economic cycles come and go which are often beyond government control. But the Labour-led Government's fiscal hole is looking deeper by the day - and bigger than the $11.7 billion of additional borrowing that Joyce identified," he said.

Joyce, the former Finance Minister under National, told The Mike Hosking Breakfast he thought Bagrie had got it right this time.

"This was always going to happen. You had a situation where, pre-election, a party was under pressure to do something different. They put in a new leader, so they brought forward their tertiary policy, which left them hardly any money at all for the normal pressures of government.

"For New Zealand, the numbers that they proposed before the election just didn't add up.

"What he is pointing out is while the debt track looks OK, in fact they have put some debt in some places where it doesn't get captured by the measure of core debt."

The Government borrowed $6.5b creatively through crown entities which did not show up on core government net debt metrics, Minister of Finance Grant Robertson has confirmed. Photo / Jason Oxenham

The debt was debt, regardless of which way you put it, he said.

"The more disappointing part is the rate at which the economy is slowing down. We were growing at 3 to 4 per cent and that is important not because of a growth number but the income it creates for New Zealanders.

Now income was going to be lower and that was because of "all these policy changes the incoming Government has promoted", Joyce said.

He rejected claims that "the world is slowing down" and so too was the New Zealand economy.

"The world isn't slowing down, at this point it is speeding up. Right now the world is growing faster than it was before. New Zealand should in actual fact be growing a bit faster as well.

"We should be able to put more money away for a rainy day and we should be able to lift people's incomes."

Policy changes like market reforms had caused businesses to stop spending because they didn't know what was coming next, he claimed.

"That has nearly halved growth. That is generated purely by Government policy. That is not generated by the world's economy."

Robertson told Hosking he was seeing some revision on the forecast for the economy for this year, but over a three- or four-year period there would still be 3 per cent growth.

In response to borrowing through crown entities via SPV's which did not show up on core government net debt metrics, he said it was not dodgy borrowing as others had claimed.

"No it's not, it's acknowledging Housing NZ and NZTA have got strong balance sheets that they can borrow against.

Economist Cameron Bagrie said Joyce was correct, there is a fiscal hole and a softening economy was making it wider. Photo / George Novak

"I would put it out that both these entities were given the ability to borrow by the previous government."

Bagrie agreed with Robertson that the books were in good shape to weather the costs.

"The good news is that the 2018 Budget showed the books are in great shape to absorb such challenges.

"Fiscal surpluses are projected for the next five years. Net debt is around 20 per cent of GDP and low by world standards. We're in good shape."

Robertson said the $6.5b borrowed was not on the core government debt metrics but he said that was the same metrics used by the previous government.

He acknowledged it could be marginally more expensive to borrow through.

"We have profit results from ASB who are 10 per cent up. Hallensteins, Glassons saying half-year results are up."

"There are clouds in terms of international tensions, tit-for-tat trade wars, that are out there and business wants more skilled staff and we are working hard to train those right now."

He said there was a need to move away from an "overheated" housing market and population growth for economic growth.

"We have to move to a more productive economy, which was why there as $1 billion in research and development the provincial growth fund.

"We want to see that transition to a more sustainable growth path and that's the policy path we've got going."

Last year Bagrie said Labour's Fiscal Plan was transparent and achievable but it would be a "massive challenge" to deliver on the numbers as presented for the 2019 and 2020 Budgets when there would be nothing left for the cost pressures on the Government after health and education increases.

He said there would be obvious pressure from areas such as law and order and core government services other than health and education.

"There's just nothing really left to get thrown at the remainder of government."