National's loan plan gets support from economist

While the politicians scrapped over the issue, economists yesterday gave the National Party's plans to lift borrowing as a percentage of GDP to pay for infrastructure a cautious tick of approval.

Berl senior economist Ganesh Nana said borrowing for infrastructure was a good theory and it was carried out by every business in New Zealand.

Harking back to the "borrowing is bad" days and the 1970s-80s Think Big projects was not helpful when there were clear instances where borrowing was good.

However, it was important to "nail down" what projects National was intending to spend the money on and to ensure those added to the country's income and productivity.

Spending on dubious projects and unproven technology, as was the case in the 1970s and 1980s, should not be allowed to happen.

Infrastructure spending on roads, energy, water, broadband, public transport and rail would achieve the goals of adding to income and productivity, Dr Nana said.

National Party leader John Key announced on Sunday that a National-led government would appoint a minister of infrastructure to reshape, co-ordinate and then oversee infrastructure objectives.

The details on what the objectives would be were vague, but included establishing a roads of national significance category, introducing priority consenting and increasing Crown capital investment by up to an extra $500 million a year above levels projected by Labour.

National would be running a gross debt to GDP ratio around 2% higher than Labour was planning, he said.

None of the borrowing would be used to pay for tax cuts planned for April of next year.

The Otago Daily Times calculated that at June 30, 2007, Crown debt was $30.6 billion, equal to 18.2% of GDP at the time ($168.1 billion).

At 22% of GDP, that would have been $36.9 billion.

At June 30 this year, Treasury was forecasting debt to be $31.8 billion, about 17% of GDP of $180.1 billion.

At 22%, borrowing would be $39.6 billion.

Dr Nana said that was not a huge increase and in the context that the Government was not in debt (because of the New Zealand Superannuation Fund assets), the borrowing situation was in much better shape than 20 years ago.

"While the past six months have not been a great time to start borrowing, we are talking about long-term debt, not something for the next six months."

The Minister of Finance, Michael Cullen said National risked doing serious damage to the reputation of New Zealand as an investment destination and place to do business with its proposals.

"National's infrastructure announcement is gimmicky and insubstantial. The reality is all they have done is re-announced a plan to subsidise Telecom's rollout of fibre-to-the-home - a widely-panned proposal that has nothing to do with economic growth - and promised to spend more on roads without naming any actual new roading projects."

However, National's finance spokesman, Bill English, said it was a classic case of Dr Cullen believing others should do as he says, not as he does.

"In early budgets, Dr Cullen declared that anything under 30% of GDP was a prudent level of debt.

"By that standard, National's plan to see gross debt average at around 22% of GDP over the next 10 years is ultra-prudent."

OECD figures showed that New Zealand had the third lowest gross debt-to-GDP ration in the developed world.

The country did not have a debt problem.

It had growth and productivity problems.

National's plan would clear the infrastructure gridlock that was holding back the country, Mr English said.