The Government has set a new medium-term fiscal target of reducing net debt to between 10 and 15 per cent of GDP by 2025, Finance Minister Steven Joyce says.
“We have made great progress in our immediate target of reducing net debt to around 20 per cent of GDP by 2020,” Mr Joyce says. “Net debt is expected to be at 24.3 per cent of GDP by the end of this financial year. Now it’s time to set a new target for net debt out to the middle of the next decade.”
Mr Joyce says that it is appropriate that any new debt target helps provide the capacity to absorb future shocks when they come along.
“We have learnt from the Global Financial Crisis and the Canterbury earthquakes that shocks can come along at any time, and sometimes they come in pairs.
“In taking the decision to support New Zealand’s most vulnerable people through the GFC, and to support Canterbury after the quakes, we had to borrow significant sums of money. All up we borrowed the equivalent of around 20 per cent of our GDP.
“That was the right thing to do. It allowed us to spread the cost of both events and allowed the economy to recover without extra taxes and without slashing entitlements, as was variously recommended by critics on the left and the right.
“But now it is the time to get net debt down – to make sure we have the capacity to absorb and respond to the next challenges New Zealand will face.”
Mr Joyce says there will always be future shocks and the most important protection against those shocks was to run a strong and vibrant economy.
“We are a geologically young country, and we are also a small country in an often turbulent world – so there are plenty of shocks ahead of us.
“With a strong economy and low net debt, we will be able to respond to whatever the future has in store for us. With net debt at around 10-15 per cent of GDP, New Zealand will have the capacity to absorb not just one but a couple of big shocks at once if we need to, as we had to last time.
“That’s what true resilience is all about. And we owe it to our future to take that decision.”