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Track record:

  • The Global Financial Crisis put government and private debt into the spotlight. The prospect that governments might default on loans looms larger in lenders' minds than it did prior to the global financial crisis. Most New Zealand government debt is held by non-residents. Debt held by non-residents is generally thought to be riskier to refinance than debt held by residents. However, as a country with a history of repaying its debt on time and successive governments that seem to take fiscal prudence seriously, the government is likely to be able to carry a higher level of public debt if the need arises, at least in the short-term. This is because lenders will trust us more. Maintaining a low level of public debt, in general, is part of that equation.

The unique combination of being very vulnerable to shocks (economic and natural disasters) and high private debt has led successive New Zealand governments to hold a lower level of debt than foreign governments. This helps to ensure New Zealand maintains a reputation for repaying debt on time and provides a buffer against future shocks.

In spite of the broad consensus to maintain prudent debt levels, over time different New Zealand governments have come to different conclusions about what level of debt is prudent. For instance:

  • In 1994, the first year that the government was required by legislation to express a long-term debt objective, the government had a goal to reduce net debt from over 40% of GDP to between 20% and 30% of GDP (measured on a slightly different basis from the net core Crown debt measure we use now).
  • This goal was amended to below 20% of GDP in 1995 and to 15% of GDP in 1998.
  • In 2000, a net debt objective of 20% of GDP was re-introduced, although in fact debt continued to decline below that level.
  • From 2002-2008 the government used a gross debt objective of 20% of GDP - essentially a stricter target.
  • After the Global Financial Crisis hit and debt began to rise, the government stated that net debt would be reduced back towards 20% of GDP. By 2012 this goal was refined to no higher than 20% of GDP by 2020.
  • In 2014, the government further clarified that after the 20% of GDP target is reached, it would maintain net debt within the range of 10-20% of GDP over the economic cycle.
  • New Zealand's prudent levels of public debt in the lead up to the Global Financial Crisis helped New Zealand cope with the shock much better than comparator countries, despite the further shock of the Canterbury earthquakes.
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