English tells Treasury: Bend the arc of debt

The Government must keep debt down because it cannot sell off assets and economic circumstances have changed, Finance Minister Bill English said yesterday.

In a post-Budget speech to the Wellington Regional Chamber of Commerce, Mr English said the Government had to keep on top of the debt track.

"Back in 1983 public debt peaked at about 73 per cent of GDP. It actually took 20 years to get it down to 20 per cent of GDP," he said.

The circumstances that enabled Governments to reduce the debt were more favourable than New Zealand faced now.

"That 20 years included 10 years of the best growth we've ever seen. It included an asset sales programme that yielded 25 per cent of GDP - so 25 percentage points out of that 70 came from asset sales. "Well, we just don't have that many assets to sell even if you decided to sell them all.

"So there's no tailwinds in the next 10 years for getting that debt down."

Mr English said the Government would not let debt go over 40 per cent of GDP - it was about half that now.

"[United States President] Barack Obama used the term in his inaugural address to bend the arc of hope, so in my Obama-like fashion I said to Treasury, 'We've got to bend the arc of debt', and that motivates them much more than that stuff Obama said."

Mr English said the Government was borrowing "flat out" and it was good that New Zealand had a healthy credit rating.

After last Thursday's Budget, rating agency Standard & Poor's, which had previously warned of a downgrade on the deteriorating outlook, upgraded the outlook from negative to stable. Mr English said the rating was important not just because of the impact a downgrade would have had on interest rates.

"While there's plenty of nasty things that can be said about credit rating agencies, and a lot of them are true, the people who lend us money take notice of them. The fact is we've got to go and borrow a lot of money from people who haven't lent it to us before."

Asked about assets, Mr English said the Government had about $200 billion worth of assets, of which between $60 billion and $70 billion were semi-commercial or commercial.

Under the Labour Government "practice and management of those assets has fallen well behind the rest of the developed world".

He added: "One of the painless gains we can make - painless as in no great risk of political backlash from cutting entitlements, or something - is to manage those assets better."

He said SOEs were underperforming. Crown financial institutions had invested about $30 billion across a range of markets, ACC liability had increased and the Super Fund had lost money.

"Did the Crown know it was taking those risks? The answer is 'no'," Mr English said.

He described the lack of oversight at ACC as a "disgraceful dereliction of duty".

The Government had to take a more "responsible and focused attitude" about assets and gave the example of the new infrastructure unit, which would ensure a better framework for capital investment and new infrastructure investments.

"If we can make 10 per cent gains across that whole portfolio, that's a lot of money."

- NZPA