Finance Minister Bill English has been quick to blame the previous Labour government for the fact he needs to borrow an average of $250 million a week. Labour, for its part, blames National's tax cuts for the need to borrow so much. Who is right? Business editor Dene Mackenzie reports.
The Government's half-year economic and fiscal update will be out on December 15 and most economists are expecting some better forecasts from Treasury.
In May, it seemed the economic world New Zealanders had known for the past decade had disappeared for ever.
Growing budget deficits - a decade of deficits Finance Minister Bill English warned - were to become a way of life.
The economy was on its knees.
Last week, he put out a statement blaming "the legacy of Labour's relentless spending increases" for the state of the economy, conveniently disregarding the global economic meltdown caused largely by the subprime crisis in the United States.
The 2010 Budget Policy Statement, also to be released on December 15, is expected to show how Mr English intends funding his government's priorities without pushing debt out further.
"On behalf of taxpayers," he said, "we are already borrowing an average $250 million a week, every week, over the next four years to ensure that we can continue providing public services and maintain welfare entitlements."
That $250 million a week equates to about $50 billion in four years.
BNZ Capitals senior economist Craig Ebert told the Otago Daily Times that as scary as that figure was, it was 10 times scarier for the rest of the world.
As a consequence of the global economic crisis, governments around the world had been throwing all sorts of money and policy at keeping their economies from going into cardiac arrest.
"All sorts of expensive drugs have been pumped into the economic systems to keep the patient alive. The problems come when the patient leaves hospital and is given the bill. Hopefully, it won't cause another heart attack."
Governments were creating debt future economies would have to pay back, he said.
The $250 million weekly average Mr English quoted had blown out to something closer to $450 million a week, according to Mr Ebert.
That did not mean things were getting worse.
Instead, it meant the Government was loading its debt upfront in case things "blew up" and money was hard to find.
"There will be so much competition for money in the next five years, it won't be funny. Governments who have been printing money will now be printing bond paper."
In the case of the New Zealand Government, it was trying to get ahead of any future crisis and avoid the risk that interest rates could rise substantially.
The Government was getting as much money on board to take as much pressure off as it could, Mr Ebert said.
"It was only a couple of years ago we were saying the New Zealand bond market was not big enough and there was not enough debt out there to keep it liquid."
Now, there was plenty of debt but because there was not so much demand by New Zealanders, it basically became foreign debt, as overseas investors took up the government bond issues, he said.
Labour Party monetary policy spokesman David Parker fairly bristles when presented with Mr English blaming the Helen Clark-led administration for the need to borrow so much money so regularly.
When Labour went into office in 1999, gross debt was 39% of gross domestic product (GDP).
When Labour was voted out last year, that ratio had fallen to 19%.
Net debt, which took into account the Cullen Superannuation Fund, had fallen to zero.
The net asset ratio was one of the best in the world, unemployment was the second lowest in the world and debt was low.
That was the legacy left by Labour, he said in an interview.
Mr Parker said Mr English did not inflation-adjust his figures when complaining about the increased spending by Labour.
Some of the spending complained of by Mr English had been introduced by the new Government.
Also, the working for families tax credit, because it was not a tax cut, was shown as government spending, he said.
Labour also started spending on infrastructure which had been under spent for two decades.
"We built hospitals from Invercargill to Kaitaia, doubled main highway spending and made a very substantial increase in new schools."
One of the more expensive spending decisions, and one Mr Parker is less proud of, was building new prisons.
The capital contribution to the Cullen Fund had been necessary to pre-fund superannuation to help remove some of the funding burden for future generations.
But Mr Parker saved his strongest criticism for National introducing tax cuts at a time when the country could least afford it.
If the tax cuts had not been introduced, the Government would not have to borrow as much as it was currently doing.
The tax cuts fuelled the consumption bubble, which in turn fuelled the property bubble, causing some of the biggest economic problems that New Zealand had ever seen, he said.
Mr Ebert said that while Mr Parker was partially correct, the economy under Labour had been an accident waiting to happen.
Labour had been the government in boom years and had recycled the surplus money into the back pockets of voters to keep them happy and voting for Labour.
That included the working for family tax credits and the hiring of bureaucrats in the "hugely expanding" public sector.
When the trouble began around the world, the so-called surpluses proved to be "frothy money".
Once the economy started to deflate, it became apparent Labour did not have the money to spend and it should have kept some for a rainy day, he said.
"This is the rainy day and it has turned out really nasty outside."
Tax revenue had dried up, particularly corporate tax revenue which was down 40% on a year ago.
Tax cuts did play a part on less tax revenue but, generally, it was the economy as a whole that was hurting.
Companies that were struggling did not make profits and did not pay tax.
It was as simple as that, Mr Ebert said.
Governments, like businesses, needed cash to balance their books.
In the case of governments, they issued debt through bonds.
No-one could say exactly what the debt was for.
It was just placed into the general account.
It went on social spending, infrastructure and other government policies but it was not earmarked for anything specifically.
So how does the Government pay back all the money it is borrowing?Mr Ebert said the Government was not in as bad a position as some others around the world, basically because it started with zero net debt.
Australia was also in a strong position.
It was acceptable for nominal debt to grow as long as it did not grow faster than the overall economy.
"For us, it is manageable. As bad as it is, we are not too badly off. The bigger issue is how badly off everyone else is. The price of the policies which have been put in place is very expensive."
For the United Kingdom Government, the fiscal cost of the current financial crisis had been ranked fourth behind the Napoleonic war, World War 1 and World War 2, Mr Ebert said.
"We are on a war footing."
The New Zealand Government would continue with a hefty bond programme overseen by the Debt Management Office.
The bond programme was staggered so a new issue came out every two or so years.
Some bonds were for two years, others for three or five.
Some went out to 10 years.
The latest bond issues were on Thursday dated November 15, 2011 for $50 million at 6%, and August 15, 2015 for $100 million at 6%.
"There are ways to manage that process and there are buffers in place to manage the liquidity. They are very good at smoothing the process. By the time a bond comes due, people have been rolled into another product," Mr Ebert said.
Managing debt
The New Zealand Debt Management Office is an operating unit of the New Zealand Treasury responsible for managing the Crown's debt, overall cash flows and interest-bearing deposits.
It was established in 1988, as part of the reform of the Government's financial management in order to improve the management of the risks associated with the Government's debt portfolio.
