New Zealand targets 10% debt level

28 Apr 17

New Zealand plans to cut its net public debt to as low as 10% of GDP by 2025, finance minister Steven Joyce has announced.

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Countries planning to establish special disaster risk management funds to meet the costs incurred by earthquakes and floods should “pay attention to the lessons of the past”, an accounting professor has cautioned.

New Zealand is looking to cut the debt it accrued after borrowing 20% of GDP in the aftermath of the global financial crisis and Canterbury earthquakes.

 

The country had been targeting net debt of 20% of GDP by the end of this decade, and with that goal in sight it has issued a new target for the following five years of between 10% and 15%.

“We have made great progress in our immediate target of reducing net debt,” said Joyce, noting net debt is expected to stand at 24.3% of GDP by the end of this financial year.

“With a strong economy and low net debt, we will be able to respond to whatever the future has in store for us,” he continued. “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.”

Joyce was referring to the global financial crisis and the earthquakes that struck the Canterbury area two years later in 2010, which he said served as a lesson that shocks can come “at any time” and sometimes “in pairs”.

Before that, the country’s net debt stood at just 5% of GDP. Joyce said another 20% of GDP had to be borrowed in their aftermath to support New Zealand’s most vulnerable.

While he stressed this was the “right thing to do”, he said it was now the time to get the net debt down in order to ensure the country is equally prepared for the future.

“That’s what true resilience is all about,” he said.

New Zealand is renowned for its healthy public finances – a reputation advocates of accrual accounting argue is down to the country’s decision to adopt the method in all aspects of its management of public money.

While the country’s net debt figures are impressive when compared to economies like the UK, which currently has net debt of 86.6%, in net terms countries like Denmark, Sweden, Finland and Norway all fared better than New Zealand in 2015. 

  • Emma Rumney

    Emma is a reporter at Cooking Recipes International. She also writes for in the UK.

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