1 00:00:05,519 --> 00:00:08,680 Speaker 1: Kyora. I'm Chelsea Daniels and this is the Front Page, 2 00:00:09,119 --> 00:00:16,239 Speaker 1: a daily podcast presented by the New Zealand Herald. New 3 00:00:16,320 --> 00:00:20,079 Speaker 1: Zealanders are well on their way to a collective one 4 00:00:20,560 --> 00:00:24,320 Speaker 1: trillion dollars in debt. At the current rate of growth, 5 00:00:24,440 --> 00:00:29,400 Speaker 1: we'll hit that landmark inside the next three years. Current 6 00:00:29,520 --> 00:00:33,000 Speaker 1: gross debt sits at more than eight hundred and seventy 7 00:00:33,280 --> 00:00:37,200 Speaker 1: billion dollars for the year to May. At the same time, 8 00:00:37,479 --> 00:00:41,400 Speaker 1: five years after COVID hit, and the government is still 9 00:00:41,560 --> 00:00:46,919 Speaker 1: paying the price. Core Crown borrowings rows eleven percent in 10 00:00:46,960 --> 00:00:51,279 Speaker 1: a year, hitting two hundred and thirty nine billion dollars. 11 00:00:51,520 --> 00:00:55,640 Speaker 1: That's one hundred and fifty six percent higher than in 12 00:00:55,720 --> 00:01:00,200 Speaker 1: May twenty nineteen. Today on the front page ends at Herald, 13 00:01:00,240 --> 00:01:03,840 Speaker 1: Business Editor at Large Liam Dan joins us to delve 14 00:01:04,080 --> 00:01:10,840 Speaker 1: deeper into our nation of debt. Liam, what are the 15 00:01:10,880 --> 00:01:14,520 Speaker 1: main factors contributing to this ongoing growth in debt? 16 00:01:14,720 --> 00:01:17,679 Speaker 2: Yeah, New Zealand's got two big drivers of that really big, 17 00:01:17,760 --> 00:01:21,080 Speaker 2: ugly debt. Number one of them. Well, the biggest one 18 00:01:21,080 --> 00:01:24,000 Speaker 2: really is our housing market and the mortgages. So the 19 00:01:24,040 --> 00:01:28,200 Speaker 2: mortgage debt is the largest chunk of our debt. It's 20 00:01:28,280 --> 00:01:31,120 Speaker 2: up around three hundred and seventy seven three hundred and 21 00:01:31,120 --> 00:01:35,800 Speaker 2: seventy eight billion dollars. And when we have a housing boom, 22 00:01:35,800 --> 00:01:37,919 Speaker 2: it really saws, it goes up, you know, ten percent 23 00:01:37,920 --> 00:01:40,240 Speaker 2: a year or something. At the moment, it's only rising 24 00:01:40,280 --> 00:01:42,920 Speaker 2: sort of about four or five percent a year, which 25 00:01:42,959 --> 00:01:45,200 Speaker 2: is relatively subdued, and that's because, as we know, the 26 00:01:45,240 --> 00:01:48,320 Speaker 2: housing market has not been booming as much. But it's 27 00:01:48,360 --> 00:01:50,880 Speaker 2: such a big number that it's still even a small 28 00:01:50,920 --> 00:01:54,480 Speaker 2: percentage rise, it's it's pretty huge, and it's not one 29 00:01:54,520 --> 00:01:58,280 Speaker 2: that where we look like we're paying down exactly anytime soon. 30 00:01:58,320 --> 00:02:00,880 Speaker 2: And the other one, of course is government debt, which 31 00:02:00,920 --> 00:02:03,640 Speaker 2: is you know, really highly political, has been in a 32 00:02:03,680 --> 00:02:07,920 Speaker 2: lot of debate about that. That is somewhere around two 33 00:02:08,000 --> 00:02:11,640 Speaker 2: hundred and thirty nine billion dollars using the measure that 34 00:02:11,680 --> 00:02:15,600 Speaker 2: we do cork around borrowing for this nation of debt series, 35 00:02:15,880 --> 00:02:19,440 Speaker 2: and that's up eleven percent, so and obviously even bigger 36 00:02:19,560 --> 00:02:24,600 Speaker 2: rises during COVID, like it basically is almost doubled since 37 00:02:24,639 --> 00:02:27,280 Speaker 2: So it was doubled since COVID. And even though the 38 00:02:27,320 --> 00:02:31,200 Speaker 2: government is currently talking about paying down debt and you know, 39 00:02:31,639 --> 00:02:34,919 Speaker 2: cutting back on spending and being fiscally responsible in things. 40 00:02:35,919 --> 00:02:39,440 Speaker 2: It's still in a situation where that total debt is 41 00:02:39,440 --> 00:02:42,560 Speaker 2: actually growing. They're having to sort of refinance the debt 42 00:02:42,800 --> 00:02:44,960 Speaker 2: and borrow more to do some of the things they 43 00:02:45,000 --> 00:02:49,680 Speaker 2: want to do. I guess what they're doing is reducing 44 00:02:49,720 --> 00:02:52,959 Speaker 2: the rate which is increasing and hoping that they can 45 00:02:53,000 --> 00:02:56,200 Speaker 2: sort of get it back on a downward track, maybe 46 00:02:56,200 --> 00:02:57,480 Speaker 2: by around twenty twenty eight. 47 00:02:57,680 --> 00:03:00,920 Speaker 1: So it's no surprise that the nation's mortgage that accounts 48 00:03:01,040 --> 00:03:03,400 Speaker 1: for the bulk of what we owe. Does that just 49 00:03:03,440 --> 00:03:08,480 Speaker 1: show how we're far too reliant on housing being our 50 00:03:08,520 --> 00:03:11,520 Speaker 1: main investment or is this always going to inevitably be 51 00:03:11,720 --> 00:03:12,640 Speaker 1: the biggest one? 52 00:03:13,000 --> 00:03:15,239 Speaker 2: Well, I mean kiwis like to own their own homes, 53 00:03:15,280 --> 00:03:18,919 Speaker 2: so it's not just investment the investment side. But yeah, 54 00:03:18,960 --> 00:03:20,480 Speaker 2: I mean when you look at sort of the product 55 00:03:20,600 --> 00:03:23,760 Speaker 2: productivity of countries around the world, you look at a 56 00:03:23,800 --> 00:03:27,800 Speaker 2: country like Germany, they've got much lower rates of home ownership, 57 00:03:27,840 --> 00:03:30,240 Speaker 2: only about fifty percent of people. People just rent long 58 00:03:30,320 --> 00:03:33,160 Speaker 2: term there and so the money you know that they 59 00:03:33,280 --> 00:03:36,200 Speaker 2: save money and they for the retirement and all the rest, 60 00:03:36,240 --> 00:03:39,400 Speaker 2: and that goes means more money is going into funds 61 00:03:39,440 --> 00:03:44,600 Speaker 2: which promote business growth and you know, economic productivity. So 62 00:03:44,840 --> 00:03:48,040 Speaker 2: New Zealand does have that problem. There are times when 63 00:03:48,560 --> 00:03:51,080 Speaker 2: it gets it looks precarious where the Reserve Bank is 64 00:03:51,160 --> 00:03:54,600 Speaker 2: very worried about the state of our mortgage debt. The issue, 65 00:03:54,640 --> 00:03:56,760 Speaker 2: of course is that you know, like we always feel 66 00:03:56,800 --> 00:03:59,360 Speaker 2: safe around mortgage debt because we've got this house. But 67 00:03:59,800 --> 00:04:03,320 Speaker 2: if property prices really fall back, which they actually have 68 00:04:03,440 --> 00:04:06,200 Speaker 2: quite a bit in Auckland and Wellington in the past 69 00:04:06,760 --> 00:04:09,400 Speaker 2: couple of years, then people have negative equity. They don't 70 00:04:09,880 --> 00:04:11,560 Speaker 2: you know, the debt can be bigger than the value 71 00:04:11,600 --> 00:04:14,040 Speaker 2: of the home. And if if there was a really 72 00:04:14,040 --> 00:04:17,200 Speaker 2: big crunch, if that happened right across the nation, we'd 73 00:04:17,240 --> 00:04:19,640 Speaker 2: still owe all that money to the Australian banks. But 74 00:04:20,040 --> 00:04:22,760 Speaker 2: housing stock isn't isn't worth what we thought, So yeah, 75 00:04:22,800 --> 00:04:26,320 Speaker 2: there's there's some there's some sort of risks around how 76 00:04:28,040 --> 00:04:31,479 Speaker 2: you know intensely we sort of invest in housing and 77 00:04:31,640 --> 00:04:34,400 Speaker 2: I think, look, you know, it's it's it's a real 78 00:04:34,440 --> 00:04:36,919 Speaker 2: bummer that for a lot of people right now that 79 00:04:36,960 --> 00:04:38,920 Speaker 2: the housing market has come off so much, especially if 80 00:04:38,920 --> 00:04:41,960 Speaker 2: you've bought around the peak. But it maybe is quite 81 00:04:42,000 --> 00:04:43,760 Speaker 2: positive in the sense that it might be shifting the 82 00:04:43,800 --> 00:04:46,320 Speaker 2: culture a little bit. People are looking at other investments 83 00:04:46,440 --> 00:04:50,000 Speaker 2: and you know, moving away from housing being such a 84 00:04:50,040 --> 00:04:52,400 Speaker 2: dominant thing. So perhaps we'll see some rebalancing in the 85 00:04:52,480 --> 00:04:55,919 Speaker 2: in the debt debt numbers over the next few years. 86 00:04:56,160 --> 00:04:59,719 Speaker 1: So the rate of debt growth has moderated recently with 87 00:05:00,000 --> 00:05:04,360 Speaker 1: both government borrowing and the housing market. Calling what events 88 00:05:04,480 --> 00:05:07,800 Speaker 1: or policies have influenced this moderation, do you think. 89 00:05:08,000 --> 00:05:11,159 Speaker 2: Yeah, well, the government has you know, it's still it 90 00:05:11,200 --> 00:05:13,760 Speaker 2: hasn't been able to sort of suddenly slash the debt, 91 00:05:13,839 --> 00:05:17,960 Speaker 2: but the government has tightened up fiscally and is trying 92 00:05:18,000 --> 00:05:23,280 Speaker 2: to spend trying to lower the rate at which spending increases, 93 00:05:23,279 --> 00:05:26,400 Speaker 2: and then ultimately trying to spend less. It hasn't really 94 00:05:26,400 --> 00:05:29,520 Speaker 2: been helped by the tax take coming down, so the 95 00:05:29,560 --> 00:05:33,960 Speaker 2: economy hasn't been booming, so that means it's lower levels 96 00:05:33,960 --> 00:05:36,120 Speaker 2: of tax coming in for the government. So that makes 97 00:05:36,120 --> 00:05:38,400 Speaker 2: it harder to keep doing what they want to do 98 00:05:38,480 --> 00:05:42,560 Speaker 2: without continuing to borrow. So that's difficult, but that has 99 00:05:42,600 --> 00:05:46,040 Speaker 2: been a government policy and it's something that they're trying 100 00:05:46,080 --> 00:05:47,760 Speaker 2: to achieve. And then the other one, of course, we've 101 00:05:48,000 --> 00:05:50,960 Speaker 2: talked about a bit just that housing market coming off 102 00:05:51,160 --> 00:05:54,640 Speaker 2: is a really big factor, and people talk about investors 103 00:05:54,640 --> 00:05:56,680 Speaker 2: coming out of the market too. So in fact, in 104 00:05:56,720 --> 00:06:00,279 Speaker 2: the last sort of the last six months to a yeah, 105 00:06:01,120 --> 00:06:03,600 Speaker 2: there's been a slight increase in the amount of borrowing 106 00:06:03,680 --> 00:06:07,479 Speaker 2: for mortgages. Not it's still at moderate levels, but people 107 00:06:07,480 --> 00:06:09,920 Speaker 2: are talking about investors coming out of the market and 108 00:06:10,000 --> 00:06:13,000 Speaker 2: the positive being more first home buyers going in. But 109 00:06:13,040 --> 00:06:15,160 Speaker 2: of course first home buyers have to borrow more from 110 00:06:15,200 --> 00:06:17,480 Speaker 2: the bank. Either the investors will have another property or 111 00:06:17,520 --> 00:06:21,000 Speaker 2: two they can use for equity. So probably more first 112 00:06:21,000 --> 00:06:23,960 Speaker 2: home buyers means that you're just going to see bigger numbers, 113 00:06:24,320 --> 00:06:25,800 Speaker 2: you know, in terms of what has to be borrowed 114 00:06:25,800 --> 00:06:28,080 Speaker 2: from the bank. Yeah, those are the two big ones. 115 00:06:28,080 --> 00:06:31,880 Speaker 2: But we're also seeing really subdued borrowing in the business 116 00:06:31,920 --> 00:06:36,320 Speaker 2: sector because the business sector is really struggling with the 117 00:06:36,720 --> 00:06:40,720 Speaker 2: slow economy, so they're not feeling like investing to expand 118 00:06:40,760 --> 00:06:43,040 Speaker 2: their businesses at the moment, so they're not borrowing from 119 00:06:43,080 --> 00:06:46,360 Speaker 2: the banks to do that at any particularly high rate. 120 00:06:46,560 --> 00:06:49,360 Speaker 2: And the one, you know, the bright spot in the 121 00:06:49,400 --> 00:06:52,080 Speaker 2: economy is the farmers and the agricultural money coming in. 122 00:06:52,120 --> 00:06:54,920 Speaker 2: The export money is coming in for farmers, but they 123 00:06:55,680 --> 00:06:58,960 Speaker 2: seem to be at this stage paying down debt. So 124 00:06:59,600 --> 00:07:03,679 Speaker 2: we've seen agricultural debt fall and that's probably a positive 125 00:07:03,680 --> 00:07:05,600 Speaker 2: thing because a few years ago the Reserve Bank used 126 00:07:05,640 --> 00:07:08,400 Speaker 2: to worry a lot about how heavily leveraged our dairy 127 00:07:08,400 --> 00:07:10,920 Speaker 2: farmers were. But they're having a couple of good, good 128 00:07:11,000 --> 00:07:11,800 Speaker 2: seasons in a row. 129 00:07:11,800 --> 00:07:12,000 Speaker 1: Here. 130 00:07:12,000 --> 00:07:14,880 Speaker 2: It's a chance for them to pay down the debt 131 00:07:14,920 --> 00:07:17,200 Speaker 2: and get there, get the balance sheets in order, and 132 00:07:17,200 --> 00:07:19,560 Speaker 2: then hopefully go spend some money and help the economy 133 00:07:19,920 --> 00:07:20,560 Speaker 2: take off a bit. 134 00:07:21,120 --> 00:07:23,840 Speaker 1: Well, aren't they in for a rebate of sorts with 135 00:07:23,920 --> 00:07:26,200 Speaker 1: a government policy if they were to buy say like 136 00:07:26,240 --> 00:07:28,760 Speaker 1: a massive tractor or something. 137 00:07:28,920 --> 00:07:32,320 Speaker 2: Yeah, not just the farmers, all business, so that we 138 00:07:32,360 --> 00:07:34,480 Speaker 2: could see that come through in the in the borrow, 139 00:07:34,560 --> 00:07:36,559 Speaker 2: you know that that's sort of an incentive to maybe 140 00:07:36,560 --> 00:07:38,640 Speaker 2: borrow a bit more because it's not going to cost 141 00:07:38,640 --> 00:07:40,640 Speaker 2: you as much. And it's not just the ute or 142 00:07:40,640 --> 00:07:46,040 Speaker 2: the tractor. It's you know, ideally it's a manufacturing firm, 143 00:07:46,200 --> 00:07:48,280 Speaker 2: you know, thinking that they can see opportunity to increase 144 00:07:48,280 --> 00:07:50,960 Speaker 2: their production and buying another another plant or another machine 145 00:07:51,040 --> 00:07:55,680 Speaker 2: or something like that to improve their productivity. So hopefully 146 00:07:55,760 --> 00:07:58,240 Speaker 2: that will actually lift it. So business business borrowing is 147 00:07:58,240 --> 00:08:00,560 Speaker 2: one of those ones where you kind of want to 148 00:08:00,600 --> 00:08:03,440 Speaker 2: see it. You know, with the household borrowing, you don't 149 00:08:03,440 --> 00:08:05,960 Speaker 2: want to see too much debt, but with businesses, you 150 00:08:05,960 --> 00:08:08,360 Speaker 2: want to see enough confidence that they are borrowing to 151 00:08:08,480 --> 00:08:11,760 Speaker 2: invest because businesses are typically borrowing to invest in things 152 00:08:11,760 --> 00:08:15,000 Speaker 2: that will make more money. And if business borrowing is 153 00:08:15,240 --> 00:08:17,400 Speaker 2: down and out, that usually is a sign that business 154 00:08:17,480 --> 00:08:18,360 Speaker 2: is a bit down and out. 155 00:08:19,280 --> 00:08:23,640 Speaker 1: So this morning, Wellington Business editor Jane tib Schrainey wrote 156 00:08:23,960 --> 00:08:28,920 Speaker 1: and she described the government's finances as suffering from long COVID. 157 00:08:30,240 --> 00:08:33,520 Speaker 1: What fiscal legacies from the pandemic do you see is 158 00:08:33,559 --> 00:08:35,679 Speaker 1: the most persistent or concerning. 159 00:08:36,240 --> 00:08:38,440 Speaker 2: Yeah, there's just been a step change in the size 160 00:08:38,480 --> 00:08:42,480 Speaker 2: of the debt and you know, people are still debating 161 00:08:42,679 --> 00:08:45,199 Speaker 2: how much of that was required, whether the government should 162 00:08:45,200 --> 00:08:48,440 Speaker 2: have pulled the pin on the stimulus earlier. You know, 163 00:08:48,440 --> 00:08:50,880 Speaker 2: there was a lot of things going on and people 164 00:08:51,760 --> 00:08:54,680 Speaker 2: have their own views on the level of the health 165 00:08:54,720 --> 00:08:57,040 Speaker 2: crisis and the lockdowns. But while we were locked down, 166 00:08:57,120 --> 00:08:59,680 Speaker 2: the government had to keep things running. Yeah, it's just 167 00:08:59,760 --> 00:09:03,040 Speaker 2: it's it's a really large increase in the overall level 168 00:09:03,040 --> 00:09:05,240 Speaker 2: of debt and that. But by New Zealand standards, I 169 00:09:05,240 --> 00:09:09,920 Speaker 2: should say, so we have something like debt of around 170 00:09:10,320 --> 00:09:14,120 Speaker 2: forty two percent of GDP. So you know, our GDP's 171 00:09:14,720 --> 00:09:17,160 Speaker 2: four hundred and something and you've got what's at the 172 00:09:17,160 --> 00:09:20,320 Speaker 2: debt two hundred and thirty nine billion that's expected to 173 00:09:20,400 --> 00:09:22,840 Speaker 2: rise and peak at about forty six percent of GDP. 174 00:09:23,120 --> 00:09:26,200 Speaker 2: Pre COVID, we were down at twenty percent of GDP. 175 00:09:26,360 --> 00:09:29,000 Speaker 2: We were we'd really gone through a phase of paying 176 00:09:29,080 --> 00:09:31,640 Speaker 2: down debt which we'd sort of actually built up through 177 00:09:31,679 --> 00:09:34,920 Speaker 2: the GFC the last big crisis, and that had been 178 00:09:34,960 --> 00:09:37,160 Speaker 2: paid down, and that meant there was scope to do 179 00:09:37,200 --> 00:09:39,560 Speaker 2: more borrowing and COVID, and that's a good thing. But 180 00:09:39,600 --> 00:09:41,240 Speaker 2: then you know, now you think, well, if there was 181 00:09:41,240 --> 00:09:43,520 Speaker 2: another crisis and the government really had to bail out 182 00:09:43,559 --> 00:09:46,839 Speaker 2: the country, it would be struggling a bit. There's always 183 00:09:46,840 --> 00:09:49,840 Speaker 2: a lot of controversy about how much debt a government 184 00:09:49,880 --> 00:09:54,360 Speaker 2: can take on because in international terms, when you look 185 00:09:54,360 --> 00:09:57,880 Speaker 2: at some of the other countries in the world, the UK, Japan, 186 00:09:58,040 --> 00:10:01,520 Speaker 2: they have debt level, public debt levels up near one 187 00:10:01,559 --> 00:10:03,760 Speaker 2: hundred percent or in Japan's case, well over you know, 188 00:10:04,040 --> 00:10:07,079 Speaker 2: one hundred percent of their GDP so they actually borrow 189 00:10:07,120 --> 00:10:09,680 Speaker 2: a lot more, and you'll hear the argument that, hey, 190 00:10:09,760 --> 00:10:13,160 Speaker 2: our government could relax and could borrow more and build 191 00:10:13,200 --> 00:10:16,240 Speaker 2: all the infrastructure. The sort of counter argument to that 192 00:10:16,280 --> 00:10:20,560 Speaker 2: comes from Treasury and plenty of other voices I suppose 193 00:10:20,600 --> 00:10:23,640 Speaker 2: as well, but they would argue that, you know, in 194 00:10:23,679 --> 00:10:26,320 Speaker 2: New Zealand, we have that really high level of housing debt, 195 00:10:26,520 --> 00:10:29,120 Speaker 2: so much of our debt is financed internationally because we 196 00:10:29,160 --> 00:10:32,000 Speaker 2: don't save as much. So in Japan some we like Japan, 197 00:10:33,520 --> 00:10:38,079 Speaker 2: the public are incredible savers and they've got all these savings, 198 00:10:38,760 --> 00:10:42,040 Speaker 2: and those savings fund the public debt. So the private debt, 199 00:10:42,400 --> 00:10:46,000 Speaker 2: private investment of the people for their retirement funds is 200 00:10:46,120 --> 00:10:49,560 Speaker 2: enough to actually fund a large chunk of the government's borrowing, 201 00:10:49,640 --> 00:10:52,760 Speaker 2: which means they're not exposed to sort of big international 202 00:10:52,800 --> 00:10:55,160 Speaker 2: banks deciding they don't like the look of us anymore, 203 00:10:55,200 --> 00:10:57,880 Speaker 2: which is always a risk for New Zealand because we're 204 00:10:57,880 --> 00:10:59,760 Speaker 2: so exposed internationally. 205 00:11:05,640 --> 00:11:08,840 Speaker 1: On our debt, we're mirroring a trillion dollars. 206 00:11:08,880 --> 00:11:12,800 Speaker 3: Just sounds like so much bloody money, doesn't it, Sarah. 207 00:11:12,920 --> 00:11:15,800 Speaker 3: It's one of those numbers that you can't even comprehend, right, 208 00:11:15,840 --> 00:11:18,319 Speaker 3: You just keep adding a Z onto it or another 209 00:11:18,400 --> 00:11:21,160 Speaker 3: O and because it just doesn't seem kind of kind 210 00:11:21,200 --> 00:11:24,960 Speaker 3: of real. But the thing is, it's like when you borrow, 211 00:11:25,120 --> 00:11:28,640 Speaker 3: you want progress or you want an outcome from that. 212 00:11:28,720 --> 00:11:30,640 Speaker 3: And I feel like that's the part that we're not 213 00:11:30,679 --> 00:11:34,000 Speaker 3: around whole day. The bang for the buck that's coming 214 00:11:34,000 --> 00:11:36,920 Speaker 3: from that massive debt just doesn't seem to kind of 215 00:11:36,920 --> 00:11:39,600 Speaker 3: be there. We're just treading water. And I think that's 216 00:11:39,679 --> 00:11:41,760 Speaker 3: the kind of concerning thing. 217 00:11:43,000 --> 00:11:48,920 Speaker 1: Well, Treasury warns that New Zealand's finances are in structural deficit. 218 00:11:49,640 --> 00:11:50,640 Speaker 1: What does that mean? 219 00:11:51,800 --> 00:11:56,160 Speaker 2: It means turning it around so that we actually see 220 00:11:56,280 --> 00:11:59,800 Speaker 2: debt going down so that we earn more than we 221 00:12:00,080 --> 00:12:03,760 Speaker 2: bend is very very difficult. It's a structural problem. And 222 00:12:03,800 --> 00:12:06,680 Speaker 2: that's because I mean, you know, in simple terms, with 223 00:12:06,760 --> 00:12:10,800 Speaker 2: the population aging, more people going to be needing, the superannuation, 224 00:12:11,040 --> 00:12:12,920 Speaker 2: all that sort of stuff, you get to a point 225 00:12:12,920 --> 00:12:15,280 Speaker 2: where the numbers just don't add up. You're either going 226 00:12:15,280 --> 00:12:18,080 Speaker 2: to have to tax a lot more or you're going 227 00:12:18,120 --> 00:12:21,080 Speaker 2: to have to cut spending a lot. New Zealanders don't 228 00:12:21,080 --> 00:12:22,560 Speaker 2: want to do that. They want to keep up as 229 00:12:22,559 --> 00:12:24,880 Speaker 2: sort of a we want the first world services. But 230 00:12:25,360 --> 00:12:29,160 Speaker 2: we're not prepared to do the things to get there. So, yeah, 231 00:12:29,440 --> 00:12:32,760 Speaker 2: it's a difficult one and the one that most politicians 232 00:12:32,760 --> 00:12:34,920 Speaker 2: will fall back on as well. We're going to bring 233 00:12:34,960 --> 00:12:38,079 Speaker 2: in policies to make the economy boom, because you can 234 00:12:38,679 --> 00:12:40,880 Speaker 2: grow your way out of debt if you have a 235 00:12:40,960 --> 00:12:46,760 Speaker 2: strong enough you know, GDP, you can make lots of money. 236 00:12:46,760 --> 00:12:48,680 Speaker 2: The government will get a lot more tax because the 237 00:12:48,679 --> 00:12:51,440 Speaker 2: economy's humming, and also the numbers will get bigger, and 238 00:12:51,440 --> 00:12:53,959 Speaker 2: that the debt doesn't look so bad relative to the 239 00:12:54,000 --> 00:12:57,920 Speaker 2: size of the economy. But you know, so far we're 240 00:12:58,040 --> 00:13:00,440 Speaker 2: a year and a half into this government's term. That's 241 00:13:00,480 --> 00:13:02,040 Speaker 2: not happening yet unfortunately. 242 00:13:02,880 --> 00:13:08,160 Speaker 1: So we're edging towards one trillion dollars in combined debt. 243 00:13:08,640 --> 00:13:12,160 Speaker 1: Is there a breaking point? So, is there some number 244 00:13:12,520 --> 00:13:15,400 Speaker 1: or you know, percentage of GDP that we look at 245 00:13:15,400 --> 00:13:19,080 Speaker 1: and we say we cannot go past that point without 246 00:13:19,080 --> 00:13:20,880 Speaker 1: completely collapsing the economy? 247 00:13:20,920 --> 00:13:24,040 Speaker 2: Say, when there probably are numbers, the trillion doesn't necessarily 248 00:13:24,080 --> 00:13:25,800 Speaker 2: mean that much other than it's sort of a big 249 00:13:25,840 --> 00:13:29,200 Speaker 2: scary number. Yeah, And of course what we're doing to 250 00:13:29,240 --> 00:13:31,320 Speaker 2: get up to that near that trillion, that that's eight 251 00:13:31,440 --> 00:13:34,079 Speaker 2: hundred and seventy two billion dollars. That's that's the gross debt. 252 00:13:34,800 --> 00:13:37,040 Speaker 2: So that's us adding up all the government debt, all 253 00:13:37,040 --> 00:13:39,880 Speaker 2: the private debt and you know from including local government, 254 00:13:39,880 --> 00:13:43,520 Speaker 2: student loans, housing, business and agriculture, and you know, with 255 00:13:43,640 --> 00:13:46,400 Speaker 2: debt you also have to look at that balanced against 256 00:13:46,440 --> 00:13:48,160 Speaker 2: the wealth and the nation. It's a bit like you know, 257 00:13:48,200 --> 00:13:50,599 Speaker 2: you have a you might have a big mortgage, but 258 00:13:50,640 --> 00:13:52,600 Speaker 2: your house might be worth a million and a half dollars, 259 00:13:52,600 --> 00:13:54,880 Speaker 2: and so you do have to look at you know, 260 00:13:55,000 --> 00:14:00,240 Speaker 2: New Zealand savings and kind of New Zealand's overall wealth, 261 00:14:00,520 --> 00:14:04,240 Speaker 2: you know, to balance it out. But unfortunately that's also 262 00:14:04,280 --> 00:14:06,440 Speaker 2: sort of been going backwards in the past year or so, 263 00:14:06,440 --> 00:14:11,400 Speaker 2: so savings rates have been coming down, and the stats 264 00:14:11,440 --> 00:14:13,839 Speaker 2: ENZ does a household net worth survey where it looks 265 00:14:13,880 --> 00:14:17,240 Speaker 2: at all the assets owned by households and that's fallen 266 00:14:17,240 --> 00:14:19,560 Speaker 2: away a bit as well. So that makes our equation 267 00:14:19,680 --> 00:14:23,160 Speaker 2: look worse. Yeah, the reality is we are reliant on 268 00:14:23,640 --> 00:14:25,920 Speaker 2: big ratings agencies like S and P, and they have 269 00:14:26,000 --> 00:14:29,240 Speaker 2: a number that they don't like. They don't like our 270 00:14:29,280 --> 00:14:34,160 Speaker 2: current account deficit getting above ten percent of GDP. I'm 271 00:14:34,160 --> 00:14:37,440 Speaker 2: not quite sure what their government number would be. They 272 00:14:37,480 --> 00:14:40,520 Speaker 2: will sometimes warn about housing debt, but there is a 273 00:14:40,520 --> 00:14:44,720 Speaker 2: point and if our debt started to look precarious, like 274 00:14:45,040 --> 00:14:46,920 Speaker 2: it's all about our ability to service it, if we 275 00:14:46,920 --> 00:14:49,560 Speaker 2: can keep paying it, mostly the international banks don't care. 276 00:14:49,720 --> 00:14:52,200 Speaker 2: But if it starts to look like something that we 277 00:14:52,240 --> 00:14:54,920 Speaker 2: would struggle to pay off, if we had another crisis, 278 00:14:54,920 --> 00:14:58,880 Speaker 2: for example, that we couldn't you know, hit those targets, 279 00:14:58,920 --> 00:15:01,320 Speaker 2: then they would re raate us, so they would downgrade 280 00:15:01,360 --> 00:15:04,240 Speaker 2: our credit rating, and we would see that in the 281 00:15:04,280 --> 00:15:06,640 Speaker 2: cost of borrowing, our interest rates would go up, our 282 00:15:06,680 --> 00:15:09,040 Speaker 2: dollar would fall. And so that's why we're at the 283 00:15:09,080 --> 00:15:12,880 Speaker 2: mercy of those rating agencies, and why it's important to 284 00:15:12,960 --> 00:15:18,560 Speaker 2: keep debt within sort of boundaries that basically the economists 285 00:15:18,040 --> 00:15:23,760 Speaker 2: and the banks are comfortable with, because whether we like 286 00:15:23,800 --> 00:15:27,760 Speaker 2: it or not, the decisions that those international organizations make 287 00:15:28,000 --> 00:15:31,800 Speaker 2: will ultimately determine, you know, how good or bad the 288 00:15:31,840 --> 00:15:32,440 Speaker 2: economy is. 289 00:15:33,240 --> 00:15:36,400 Speaker 1: And I saw that Treasury also insists that we need 290 00:15:36,600 --> 00:15:43,000 Speaker 1: extra large buffers due to our reliance on trade, exposure, exposure, 291 00:15:43,160 --> 00:15:48,200 Speaker 1: exposure to natural disasters, and offshore debt. How do we 292 00:15:48,280 --> 00:15:52,040 Speaker 1: create that kind of rainy day fund if we are 293 00:15:52,320 --> 00:15:54,320 Speaker 1: continuing to grow debt at the same time. 294 00:15:54,680 --> 00:15:57,120 Speaker 2: Yeah, well that's that. That's why I guess the government 295 00:15:57,120 --> 00:16:00,160 Speaker 2: would argue that it's had to be fiscally tighter in 296 00:16:00,200 --> 00:16:02,080 Speaker 2: the last year or so. There are plenty of people 297 00:16:02,120 --> 00:16:04,480 Speaker 2: saying that they haven't gone far enough. Actually, although you know, 298 00:16:04,520 --> 00:16:08,280 Speaker 2: that's a debatable point. But under Bill English, we really 299 00:16:08,320 --> 00:16:10,960 Speaker 2: paid down debt, you know, getting down to that twenty percent. 300 00:16:11,040 --> 00:16:13,520 Speaker 2: That really did give us a buffer and we were 301 00:16:13,520 --> 00:16:16,320 Speaker 2: able to spend in COVID. I mean, well, I sort 302 00:16:16,360 --> 00:16:17,680 Speaker 2: of said it was the GFC, but it was the 303 00:16:17,760 --> 00:16:21,120 Speaker 2: christ At earthquake and combination with the GFC that blew 304 00:16:21,120 --> 00:16:23,520 Speaker 2: out our debt. And Bill English being the kind of 305 00:16:23,520 --> 00:16:27,080 Speaker 2: finance ministry was, he was very focused at paying that 306 00:16:27,160 --> 00:16:30,440 Speaker 2: down over several years. So it wasn't a complete shock, 307 00:16:30,480 --> 00:16:35,680 Speaker 2: it wasn't a complete austerity type scenario, and so we 308 00:16:35,760 --> 00:16:38,040 Speaker 2: could do that. Hopefully we can do that gently over 309 00:16:38,120 --> 00:16:40,240 Speaker 2: a number of years. But I guess the risk is that, 310 00:16:40,760 --> 00:16:43,640 Speaker 2: as the Treasury points out, we are vulnerable to another 311 00:16:43,640 --> 00:16:50,000 Speaker 2: big earthquake. Flooding risk seems really high, or if at 312 00:16:50,040 --> 00:16:52,800 Speaker 2: the moment the commodity prices are booming, but if they collapsed, 313 00:16:52,840 --> 00:16:56,000 Speaker 2: or if you know, something crazy happened in the world, 314 00:16:56,120 --> 00:17:00,600 Speaker 2: like geopolitical, something like Taiwan becoming a flashpoint for conflict 315 00:17:00,600 --> 00:17:03,320 Speaker 2: with China and America saying no one's allowed to trade 316 00:17:03,360 --> 00:17:05,280 Speaker 2: trade with China, that kind of thing. If we had to, 317 00:17:06,119 --> 00:17:08,960 Speaker 2: you know, if we had a real disruption to our trade, 318 00:17:09,640 --> 00:17:13,800 Speaker 2: we would be stuck. And at the moment we're slightly 319 00:17:13,880 --> 00:17:15,840 Speaker 2: up near the upper end of what we can afford 320 00:17:15,880 --> 00:17:18,440 Speaker 2: to do, so it would limit the government's ability to 321 00:17:18,480 --> 00:17:19,320 Speaker 2: bail us out. 322 00:17:19,640 --> 00:17:22,080 Speaker 1: Is there any point of getting down to zero percent 323 00:17:22,200 --> 00:17:23,439 Speaker 1: dat No. 324 00:17:23,400 --> 00:17:27,480 Speaker 2: Probably not. I don't think modern economies work that way, 325 00:17:27,600 --> 00:17:30,840 Speaker 2: and modern businesses don't work that way. It's important to remember, 326 00:17:30,920 --> 00:17:34,080 Speaker 2: you know, you say, we talk about big, ugly debt figures, 327 00:17:34,119 --> 00:17:36,679 Speaker 2: and debt always seems like the villain, but it's not 328 00:17:36,800 --> 00:17:41,280 Speaker 2: really debt when it's used well and used is a 329 00:17:41,320 --> 00:17:44,879 Speaker 2: way of getting things done that you couldn't get done before. 330 00:17:44,920 --> 00:17:48,080 Speaker 2: It's an amazing invention of the you know, not a 331 00:17:48,080 --> 00:17:51,399 Speaker 2: modern economic invention. It's been around for thousands of years, 332 00:17:51,440 --> 00:17:55,639 Speaker 2: but you know, it enables people to in society to 333 00:17:55,680 --> 00:17:58,199 Speaker 2: achieve things that they couldn't have otherwise. So it transfers 334 00:17:59,359 --> 00:18:02,080 Speaker 2: wealth across a sort of a time band. You know. 335 00:18:02,560 --> 00:18:04,679 Speaker 2: It means that you can say, well, you give me 336 00:18:04,680 --> 00:18:06,919 Speaker 2: the money now, will make something happen. It speeds up 337 00:18:07,000 --> 00:18:09,800 Speaker 2: transactions in the economy and it keeps It can really 338 00:18:09,880 --> 00:18:13,280 Speaker 2: enable a lot of wealth creation. So debt itself is 339 00:18:13,320 --> 00:18:15,000 Speaker 2: sort of you have to look at it sort of 340 00:18:15,200 --> 00:18:17,199 Speaker 2: as a neutral thing. It can be really positive, it 341 00:18:17,240 --> 00:18:20,600 Speaker 2: can be really negative, but it's not inherently bad. It's 342 00:18:20,720 --> 00:18:23,840 Speaker 2: just about the amount that we take on and also 343 00:18:24,040 --> 00:18:28,280 Speaker 2: very importantly what we're using it for. So the trouble 344 00:18:28,280 --> 00:18:31,320 Speaker 2: with the housing thing is that you know, if we 345 00:18:31,400 --> 00:18:35,520 Speaker 2: all borrow to buy houses and we compete against each other, 346 00:18:35,560 --> 00:18:39,080 Speaker 2: we push up the house prices. There's no gain to 347 00:18:39,160 --> 00:18:41,960 Speaker 2: anyone from the house price on because it's just paper money. 348 00:18:42,760 --> 00:18:44,439 Speaker 2: We've all pushed up the house price. We've all had 349 00:18:44,480 --> 00:18:47,240 Speaker 2: to borrow more from the Australian banks. Real money has 350 00:18:47,280 --> 00:18:50,200 Speaker 2: to go out to pay the Australian banks. But the 351 00:18:50,480 --> 00:18:53,119 Speaker 2: bigger numbers on the house prices aren't really helping the 352 00:18:53,160 --> 00:18:56,520 Speaker 2: economy grow. If we were borrowing to invest in you know, 353 00:18:56,800 --> 00:18:59,000 Speaker 2: tech startups or whatever and all that sort of stuff, 354 00:18:59,680 --> 00:19:02,399 Speaker 2: I think that would be a lot more productive for 355 00:19:02,440 --> 00:19:03,040 Speaker 2: the economy. 356 00:19:03,440 --> 00:19:04,320 Speaker 1: Thanks for joining us. 357 00:19:04,359 --> 00:19:05,719 Speaker 2: Liam cheers, no worries. 358 00:19:09,080 --> 00:19:12,320 Speaker 1: That's it for this episode of the Front Page. You 359 00:19:12,359 --> 00:19:16,240 Speaker 1: can read more about today's stories and extensive news coverage 360 00:19:16,280 --> 00:19:20,359 Speaker 1: at enzidherld dot co dot nz. The Front Page is 361 00:19:20,440 --> 00:19:23,840 Speaker 1: produced by Jane Ye and Richard Martin, who is also 362 00:19:24,040 --> 00:19:28,520 Speaker 1: our editor. I'm Chelsea Daniels. Subscribe to the Front Page 363 00:19:28,560 --> 00:19:32,160 Speaker 1: on iHeartRadio or wherever you get your podcasts, and tune 364 00:19:32,200 --> 00:19:35,240 Speaker 1: in tomorrow for another look behind the headlines.