Government borrowing $100m a week more than it needs
The government has front-loaded its debt because it is cheaper to borrow money now than it is likely to be in the future, Finance Minister Bill English says.
Treasury figures show the government's borrowing of $380 million a week is about $80 million to $100 million a week more than it has to.
Labour deputy leader Annette King said it was time the government fronted up about why it was borrowing more than it needed to.
If it was because it made economic sense to do that, then why not just say so, Ms King asked.
Finance Minister Bill English said the extra money borrowed, effectively cash held by the Reserve Bank, would enable the government to reduce its borrowing to about $100 million a week from July.
The government had brought forward some of its debt to access a “more favourable” interest rate, he said.
It did not change the total amount of money, $16.7 billion, that needed to be borrowed by the government, he said.
Not only were present interest rates for borrowing lower than they are likely to be in the future, Mr English said borrowing more than it had to in recent months also reduced the risk of not being able to access what it needed to next year.
There was a risk of disruption in European financial markets due to the high level of some countries' indebtedness, which could affect the government's ability to borrow what it needed to in the future, he said.
Mr English said lessons needed to be learned from 2008, when a similar disruption in Europe made it very difficult to borrow money.
However, he admitted that the present high level of borrowing could be putting additional pressure on the exchange rate.
Reducing borrowing from next month should help alleviate that, Mr English said.
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Comments and questions12
Jeeze Annette - the answer seems to be yes. Even I got that - Recc' reading for Annette could be "how to not ignore the declining tradable goods market for about 10 yrs & why borrowing to fund WFFamilies was a dilly idea."
Maybe a colour ing book version of basic economics for the Greens and Labour could be useful...
..stop them saying such silly billy things...
How about we look at actually *gasp shock horror* adding real value to NZ's economy? Science, IT and technology are poor cousins to rugby, beer and racing... lets keep borrowing and selling dead animal bits, trees, coal which makes us a price taker.. awesome work New Zealand
In direct response to the article - Yes, good work on calling on Bill to front up about the reasons for over borrowing. I absolutely believe that it makes sense to buy cheep foreign debt today rather than tommorrow ... IF NEED BE****. But this is not the reason why National has done this. Bill has been over borrowing today, and in effect causing an exageratted government deficit, in order to fund a significal return to surplus in the near future - of which it will claim was due to it's recent economic policies rather than its current habit of over borrowing. And then it will try to use this political credit to 'buy' it's third term.
Call me cynical (as a side note I'm politically nuetral), but unless I'm wrong about the way in which a fiscal position is calculated, I'm absolutley adimant that this is the main reason National has done what it has done.
****What MUST be remembered, is that government borrowing (because of it's scale) comes at a cost - the indirect crowding out effect and exchange rate effect of government overborrowing may outweigh the supposed benifits of the activities it is borrowing for ... even if, in a static sense, the borrowing makes sense. Spreading out the borrowing will dampen the crowding out and exchange rate effects, if not directly, then at least by limiting the volitility arising from these effects.
Pity we didn't borrow US$ way back when.....or just print NZ$ instead of borrowing them from offshore derivative players....
This extra borrowing is to cover the tax blunder National introduced. GST is a consumption tax, and will hardly work in recessionary times.
The only benefactors in this change to tax has been the banks two ways:
1. Providing PAYE employees earning more than $70,000 plus more tax home pay to keep the banks at bay from forced sales.
2.,Extra business for banks through increased government borrowings.
Why am I not surprised by this when your PM is an exBanker himself. This guy is not working for NZers, rather some overseas interests. You have to ask yourself why would one have to surround yourself with so much self protection? The answer is hes on a dangerous mission called treason!
This extra borrowing is to cover the tax blunder National introduced. GST is a consumption tax, and will hardly work in recessionary times.
The only benefactors in this change to tax has been the banks two ways:
1. Providing PAYE employees earning more than $70,000 plus more tax home pay to keep the banks at bay from forced sales.
2.,Extra business for banks through increased government borrowings.
Why am I not surprised by this when your PM is an exBanker himself. This guy is not working for NZers, rather some overseas interests. You have to ask yourself why would one have to surround yourself with so much self protection? The answer is hes on a dangerous mission called treason!
sounds like spin
why borrow more than we need?
liberte
Why borrow more than we need? Simple, becuase interest rates are going up, when future years debt rolls off we have already refinanced, instead of refinancing at higher rates (think fixing your mortgage now as opposed to a few years time).....
Although Annette the dental nurse knows better - of couse.
Boy there are some conspiracy nutters on this thread! It makes sense to borrow now if the rates are better and it is prudent - what would happen if something goes really wrong in the rest fo the world and we simply have no access to funds in 6 months time to fund our deficit.
E all know, it is better to have facilities in place with a "bank" when not needed as it can be very hard to get more funds at a reasonable rate if our situation or the world worsens.
Good on your John and Bill - practical men who can handle cash at last.
You are obviously financially illiterate. Powers manipalute rates (have a look at the US), building up their investment then change the rules by increasing the cost of borrowing. Effectively, all they have done is manipulate values short term to gain a bigger interest of your business long term.
Have you not worked out how the global financial crisis was created? Its time to wake up & smell the roses.
In response to Slippers.. June 7 3.54pm.
You really dont make any sense at all. The surplus or deficit calculation is based on the revenue and expenses in any given year.... it makes no difference to be pre-funding now or not (actually slightly tougher given we are paying interest on funds we do not yet need). The pre-funding has been done on the basis of prudence given low interest rates. Your suggestion of it having something to do with returning to surplus earlier is simply daft. It would appear you went to the Annette King school of Accounting.