Govt can spend more: economists

Public service workers are continuing their strike action and representatives are calling on Finance Minister Grant Robertson to break his own budget responsibility rules by increasing spending and borrowing more.

Kiwibank chief economist Jarrod Kerr said yesterday New Zealand had ample room to lift debt and expand.

The New Zealand Government had a self-imposed pledge to keep spending at 30% of GDP and reduce net debt to 20% of GDP by 2022.

``These are low numbers when compared to our foreign peers. And we are ranked among the safest countries in the world because of them.''

Berl chief economist Ganesh Nana is among those saying the Government should rethink those targets.

``If we stick to those caps for anything more than the next couple of years, then we won't get anywhere near solving the infrastructure deficits that we've had across this country, built up over the last couple of decades. There's a lot of catching up to be done,'' he told RNZ.

Mr Kerr said New Zealand had remained with the evaporating global pool of AAA-to-AA+ rated nations, but at what cost?

New Zealand had ample room to issue debt and invest. The critical point being to invest, and not spend - investing today for a more productive economy for the children of the future.

``New Zealand's fiscal position is one of the most enviable in the world. Surpluses are projected to grow over the next five years. Net debt as a percentage of GDP is low to start with, and projected to drop below 20%.

``It is debatable as to whether governments need to hit the self-imposed target. But the discipline itself is admirable, and to the liking of rating agencies.''

The health of the economy, and therefore budget, had enabled a significant boost in spending, with ambitious building plans, he said.

In Budget 2018, tax revenue was forecast to rise by more than $23 billion over the next five years, $5.7 billion above the half-year economic forecasts.

Tax was higher for three reasons, Mr Kerr said.

First, the greater-than-expected tax revenue to date increased the starting point. In the nine months to March, revenue was already $1.1 billion ahead of the half-year forecast.

Secondly, a stronger starting point enabled a stronger outlook, and a lift in projected revenues by $3.4 billion.

Thirdly, tweaks to tax policy on GST (Amazon tax), and the removal of the negative gearing loophole for property investors, boosted the coffers. ``More money means more spending.''

The New Zealand Debt Management Office would issue just $1 billion more debt out to 2022, Mr Kerr said.

Calls for a cheapening in New Zealand government bonds (higher interest rates) were misplaced.

The DMO was adding liquidity to a bond market that had received great demand.

The idea that New Zealand government bonds must include a ``liquidity premium'' had proven outdated, he said. They might have a future ``scarcity premium'', as Australian government bonds once did.

New Zealand's net debt had fallen from a peak of 26% to 21%, and was forecast to fall below the 20% target by 2022.

The 20% target was not needed to maintain current credit ratings.

``The Government has plenty of room to boost infrastructure spending in future Budgets. Rating agencies are more lenient on debt issued to fund infrastructure because good infrastructure boosts productivity, and productivity boosts projected revenues.''

Taxpayers Union spokesman Louise Houlbrooke said the Government should keep to its prudent self-imposed debt limits.

While it was tempting to significantly increase government spending, a larger government would not reduce deprivation.

Increasing social spending, without targeting it at the root causes of deprivation, drove welfare dependence and a cycle of poverty.

``Increasing the debt limit just gives the Government more opportunity to ramp up social programmes that hollow out communities by making them more reliant on the state.''