The Government was at the back of a long queue of global borrowers and had to compete vigorously to secure funds to help lift the economy out of recession, Finance Minister Bill English said yesterday.
"We have to go out and tell our story. Then we will find out who is willing to lend to us. We are competing with US government bonds and United Kingdom and European government bonds.
"We have to have a good story to get a share," he told about 90 members of the Otago Chamber of Commerce at a lunchtime address in the Dunedin Public Art Gallery.
The Government wanted to be careful about rising levels of debt.
Debt was forecast to grow from $35 billion to about $70 billion in the next four years, as the price of maintaining public services and entitlements.
Many people in yesterday's audience would remember the pain of getting debt reduced in the past.
It took 20 years to reduce debt from 70% of GDP to 20%, including some of the best years the country had experienced, Mr English said.
"We are talking about a 20-year cycle. If debt gets too high, someone has to pay it down to be ready for the next shock."
Mr English used his time with the chamber to run through his overview of the economy and what the Government planned to do to have the country come out of the recession in better shape than most of its trading partners.
One of the main risks was rising unemployment.
Early last year, unemployment was 3%.
By the end of 2008, it was up to 4% and had continued to rise significantly in the past three or four months.
In some other countries, there had been a negative spiral of higher unemployment and lower house prices.
Mr English did not believe New Zealand would see the same spiral, as signs of stability were emerging in the housing market.
But it was likely that soon everyone would know someone who had lost his or her job.
"For some people that was a huge adjustment. When five or six workers in every 100 lose their jobs, they have a big drop in income, standard of living and their sense of confidence.
"For the Government, restraining rising unemployment is a high priority. We want to create an environment where new jobs are created."
GDP could return to positive growth, but employment would still lag as it was usually the last indicator to turn, Mr English said.
The minister had a warning for banks not to try to make excessive profits when taxpayers, through the Government deposit-guarantee scheme, were taking on a great deal of risk.
The deposit-guarantee scheme was a $100 billion liability on the Government's balance sheet.
So far, the scheme had been a "relatively costless exercise", but it had the potential to land taxpayers with high costs and the ownership of several banks.
The scheme ran through until 2010, and banks and some finance companies were taking deposits from customers with the guarantee in place.
Investors wanted to know what would happen at the end of the two years.
That was one of the complexities with which the Government was dealing.
Although Mr English made no announcement about an ongoing scheme, he indicated it would be very hard to end it.
New Zealand banks were not behaving too badly, but it was hard to tell whether banks were responding by reacting to genuine credit risk or behaving badly and just wanting their money back.
"We watch the banks closely and keep in touch with them regularly. Taxpayers are taking a lot of risk that bank shareholders would normally take. We expect banks to be accommodating in difficult circumstances," Mr English said.
