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Speaker 1: Six thirteen, News Talk said B S and P Global

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Speaker 1: Ratings is warning that all the debt we're going to

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Speaker 1: need to keep the lights on is going to come

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Speaker 1: at a cost. Treasury yesterday warned that the government will

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Speaker 1: need twenty billion dollars more than forecast at the budget

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Speaker 1: in May. It's an extra sixteen percent in bonds than

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Speaker 1: was predicted. And Janet tips Training is with us. She's

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Speaker 1: The Herald's Wellington business editor. She's been across this story.

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Speaker 1: Good evening, Jane. Nice to have you back on the show.

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Speaker 2: Hello, Ryan, good to be here.

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Speaker 1: Now what has SMP been telling you?

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Speaker 2: So, I've just come off the phone with SMP, a

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Speaker 2: guy called Martin fu Now, you know, credit rating agencies

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Speaker 2: what they have to say about the New Zealand government

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Speaker 2: books matters because our credit rating agent. Credit rating determines

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Speaker 2: the sort of interest rates that we pay investors who

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Speaker 2: buy our debt. Now, Martin noted, you know they're still

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Speaker 2: digesting the numbers. For now New Zealand's credit rating has

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Speaker 2: not changed. The outlook is still stable. But he was

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Speaker 2: surprised by the deterioration of the economic forecast. You know,

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Speaker 2: the things are not looking as good as previously assumed.

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Speaker 2: He also made the point that because the New Zealand

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Speaker 2: government is having to issue an additional sixteen percent more bonds,

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Speaker 2: additional twenty billion dollars over four years, that's a lot

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Speaker 2: more than expected. Because of that, he reckons, sure there

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Speaker 2: will be investors around the world and domestically who are

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Speaker 2: willing to buy those bonds, but it'll come at a cost. Right,

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Speaker 2: So if there are more bonds in the market, the

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Speaker 2: price of the bonds falls and the yields rise, so

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Speaker 2: that means we have to pay more interest most likely

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Speaker 2: to get these bonds sold. So Martin fuh made the

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Speaker 2: point that you know, the New Zealand government is not

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Speaker 2: the only one issuing a whole lot of debt at

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Speaker 2: the moment us All through Europe they're doing the same thing.

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Speaker 2: There are a whole lot of bonds to be booked

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Speaker 2: in the bond market. Because of that, the interest rates,

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Speaker 2: the yields, there will be some upward pressure that that'll

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Speaker 2: rise a bit. So that means, you know, we are

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Speaker 2: paying more interest for the debt.

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Speaker 1: Interesting, isn't it, because then you start thinking, right, you know,

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Speaker 1: making a decision in isolation to issue bonds is one

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Speaker 1: thing you know, to take on more debt is one thing,

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Speaker 1: but then how what the market situation is like at

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Speaker 1: the time that you actually do that as another, And

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Speaker 1: that's exactly what you're telling us now. And then does

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Speaker 1: it make you re evaluate whether, oh, perhaps I should

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Speaker 1: have cut more spending or perhaps I should have raised revenue.

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Speaker 2: Yeah, well that's the thing. When COVID came along, interest

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Speaker 2: rates were really low, so servicing the debt was very cheap,

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Speaker 2: and everyone expected interest rates to remain low. So we

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Speaker 2: didn't foresee the sorts of inflation that we've had globally,

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Speaker 2: which means we didn't foresee interest rates rising as much

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Speaker 2: and therefore debt servicing costs rising as much as they have.

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Speaker 2: So the Treasury thinks that the cost of servicing the

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Speaker 2: debt could hit about twelve billion dollars by twenty eight,

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Speaker 2: twenty two, twenty nine, So twelve billion dollars in a year.

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Speaker 2: That's that's really high.

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Speaker 1: And this wasn't that's a third of our health light seen,

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Speaker 1: is it?

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Speaker 2: Yeah? Yeah, well something like that, And you know, we

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Speaker 2: didn't we didn't foresee that. The reason for scal conservatives.

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Speaker 2: Conservatives will say we need to get back to surplus

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Speaker 2: is because once we get the books back to surplus,

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Speaker 2: we can start repaying the debt. What we're doing at

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Speaker 2: the moment is just rolling over the COVID debt and

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Speaker 2: then issuing more debt on top of that to pay

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Speaker 2: for all the new spending. And you know that's fine.

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Speaker 2: We actually need to keep the lights on in the country.

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Speaker 2: We have all this infrastructure that we need to invest in,

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Speaker 2: but it does come at a cost. And other countries

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Speaker 2: are doing the same thing, and that is putting upward

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Speaker 2: pressure on those on those interest rates.

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Speaker 1: Which gets us to the peak forty seven percent GDP

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Speaker 1: to debt to GDP ratio that we're expected to hit

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Speaker 1: on the back of these new forecasts. Right and you know,

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Speaker 1: you look for pre COVID, we were sitting at around

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Speaker 1: twenty we're always twenty or maybe up to twenty four,

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Speaker 1: but less than that. Then we went up to forty.

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Speaker 1: Now we're going to peek at forty seven percent debt

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Speaker 1: to GDP.

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Speaker 2: Is that?

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Speaker 1: How worrying is that? Obviously it's nothing nowhere near what

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Speaker 1: other countries like Europe, etc. Are But we're a small

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Speaker 1: trading nation. How vulnerable are we on that? Well?

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Speaker 2: That's the exact thing. You know, there'll be people who say,

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Speaker 2: we can't just go slashing everything because we need you know,

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Speaker 2: health care, and we desperately need investment in infrastructure, so

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Speaker 2: we can't go not spending money. But on the other hand,

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Speaker 2: if there was to be another big disaster or another

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Speaker 2: big event, we are exposed. We're a little ireland. We

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Speaker 2: rely on our trading partners. The world is a pretty

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Speaker 2: volatile and uncertain place. There is arguably greater need for

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Speaker 2: us to have our books in really good shape because

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Speaker 2: of our vulnerabilities compared to other countries like the US,

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Speaker 2: you know, which have way more debt than we have,

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Speaker 2: even relative to the size of the economy. So it's

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Speaker 2: a balancing act and you know, the government has a

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Speaker 2: national at least has suggested it does want to strike

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Speaker 2: a good balance and not you know, slash spending at

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Speaker 2: all costs. Whether they are striking that right the balance

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Speaker 2: in a good way is the issue. That's that's really

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Speaker 2: up for debate.

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Speaker 1: Toenay really good analysis. Thank you so much for that.

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Speaker 1: Jena to Trainey, who's New Zealand Herald's Wellington business editor,

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Speaker 1: with US Live nineteen minutes after six on News Talk

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Speaker 1: semb so at the moment, sounds like the rating agencies,

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Speaker 1: the s and ps, etc. They're not panicking about what's

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Speaker 1: going on, but they do say it's going to cost

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Speaker 1: us because everyone else is issuing bonds and we're issuing

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Speaker 1: a lot more of them than we thought. We won't

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Speaker 1: get as good a prize, as mean as we're going

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Speaker 1: to pay more for the debt that we need to

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Speaker 1: run the place. Nineteen after six? Coming up next? What

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Speaker 1: is coming up next? Forgive me? It's Milford and we're

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Speaker 1: talking about Santa. What has Santa got to do with

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