Fiscal policy

New Zealand’s 2023 Budget reveals substantial spending, higher taxes, and increased borrowing. But optimistic economic forecasts and plans to repay mounting debt raise concerns about the government’s fiscal strategy.

After the 2008 crisis, Greece’s debt rating plummeted. Similarly, New Zealand’s high rating may not reflect its true economic state.

Reality obviously has not caught up with this Government yet. New Zealand is facing an economic crisis, but the Government is having none of it.

To keep international investors’ trust, we must remain squeaky clean in our fundamental economic institutions. If we are not, New Zealand will come out of the Covid-19 crisis as a broken economy and a failed state.

It must indeed be tempting to binge on infrastructure spending as Berlin can now borrow for 30 years at a negative interest rate of 0.11 percent. But should the Germans do so?

The Treasury should clarify the relationship between its Living Standards Framework and mainstream cost benefit analysis.

The only hole we have in fiscal plans is independent scrutiny of Government’s and the parties’ numbers.

As New Zealand is looking ahead to a series of budget surpluses, it becomes imperative for the government to have an answer to those reflexes. And it has to be an attractive answer to stop the fiscal dogs from salivating.