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Sunday, 31 August 2014

National, Labour and debt

Watching the analysis of the Q+A debate between National's Bill English and Labour's David Parker this morning, a quick note stated that National has increased government borrowing, and that Labour's record was paying down debt and running surpluses.


Both statements are true. Like the Bolger/Shipley National Government of the 1990s, the Clark/Cullen Labour Government of the 2000s paid down debt with the surpluses they ran. The current Key/English National Government borrowed money so we could weather the economic storm New Zealand entered (it should always be remembered) before the rest of the developed world in 2007. Then there was the global financial crisis leading to the finance company collapses, Canterbury earthquakes and Pike River to pay for.

The first problem for Labour is that its record was only good for a short time - in its last five years of office spending increased by 50%, this pushed mortgage rates to 11% and causing inflation to exceed 5%. The final PREFU under Labour in 2008 forecast 10 years of persistent government deficits, which would've put the country into billions and billions more debt than has been the case under National. 5 years on from the 2008 forecast, National was able to forecast a small surplus.

The second problem for Labour is that while David Parker might point to Labour's record last time, the party's proposals are to spend all of the next four Budgets, by hiking its new spending to $18.4 billion.

By contrast, National has committed only a small fraction of future Budgets. This will provide us with flexibility to deal with future shocks, speed up debt repayment or provide future tax reductions should there be room to do so.