I agree

“Thats why we are debt adverse in the government. ”

And that is good – government should be debt averse. However, that does not mean that we should rule out ALL borrowing projects – it simply means that borrow for a project should only occur when a certain rate of return will be made from it that takes account of this risk.

Ultimately, as long as we have a independent and impartial public service, the costing of these things should be accurate – and as a result it would be a good idea to do some borrowing.

Thats the catch though isn’t it – we have to trust the costings! Hopefully we can – and hopefully we do find out what projects any government would borrow for.

That debt was largely put in place because of Think Big projects that didn’t pay off, and a minimum payment system to cope with a ‘temporary’ fluctuation in the price of some agricultural products. The raising of this debt was supposed to help secure the economic position in the future for people like myself who were unable to vote. In one case it was to put in industrial infrastructure, and in the other to maintain a rural infrastructure.

In reality as far as I’m concerned, both supported inadequately researched projects that made assumptions about future economies that were wishful thinking (even at the time). I’d tend to view them as election bribes because they went into areas that the Nat’s need to win in a FPP election. However I had to help pay for them for the following 30 years when I didn’t even get an opportunity to vote.

Thats why we are debt adverse in the government. It doesn’t matter the mechanism. The problem is that we do not have a lot of faith in politicians who can shift debt onto future generations. To reduce the risk of pork-barrel politics, as much of debt repayment should be loaded as early as possible. After all if there is a big reason to have a project started earlier than it can be paid for, then the political risk of doing so should be carried by the people starting the project. That is what Cullen and co have been largely doing.

Now the problem is that we have a party wants to fund projects with debt. Don’t know what projects that they really want to fund. They don’t even give an idea about how they’d decide between projects. They also propose to reduce the time for objections without giving any commitments on when they’d do basic things like give project costings. Costings are likely to be useless anyway because there will be (based on overseas experience) more confidential codicils driving up the costs and risks that are never exposed to public scrutiny.

To me they look like a party that wants to push costs to future generations and remove political risk until after they are out of office. In other words – the same old national that made me pay interest for essentially useless electoral boondoggles for 30 years.l.

Agreed – I just wanted to avoid sounding like I favoured one party over the other, since I’m not a fan of any political parties at the present moment.

You could always do a post on the government financial situation – and what this may imply for the outlook for government spending/revenue 😛

I believe the stigma of public borrowing may be too high in NZ at the moment, and positive net present value projects never get off the ground. So i would cautiously endorse moves to encourage greater use of borrowing for infrastructure.

“I am sure that no matter which party wins the election, the government finances will remain in good order.”

In the sense of compared to the rest of the world, or compared to 15 years ago, the government finances are in good order. But the 2008 budget is projecting cash deficits that lead to a steady increase in net debt (a more relevant metric than gross debt) as a % of GDP, even with the economy back at a steady-state growth rate. So something has to give: higher taxes, less spending growth, or less investment/Cullen fund. It seems unlikely that National’s policies will improve this situation.

Ok, but I don’t see why this should be a fundamental issue for deciding if the government should take on debt to borrow – it is a secondary issue about how to best raise the funds.

If there was sufficient demand for such an asset on the private side of the economy, it would have been created – so I’m not even entirely convinced that such an instrument is “necessary”.

I certainly would not support government borrowing for “investment” if the sole goal was the creation of a debt instrument for people to put their money with – the actual quality of the investment should be the primary issue.

😀

Indeed, a balanced budget over time does not imply that the budget only needs to be balanced for one quarter over the next five years 😛