The doubling of government debt by a further $35 billion during the next four years - partly to fund a recession-softening infrastructure spending boost - will be part-funded by the Government offering longer-term government bonds to investors, Minister of Finance Bill English said in Queenstown yesterday.
Mr English said the Government would not be attempting to recession-proof the country by using a "sugar shot" like Australia's $40 billion-plus injection into households recently, which would "go into the pokies and flat screen televisions", he said.
Speaking to more than 80 people at a Queenstown Chamber of Commerce luncheon yesterday, Mr English said it was crucial the Government maintain its present Standard and Poors credit rating to "remain at the head of the queue" to be able to borrow the necessary $35 billion.
However, he highlighted that with the United States Government going to the market looking for $US2 trillion ($NZ3.8 trillion), "New Zealand could find itself at the back of the queue".
After the luncheon, Mr English told the Otago Daily Times the Government would look at traditional ways of raising the $35 billion, hinting that with debt doubling its government bond issue would similarly double.
However, rather than short-term bonds, the Government would offer them for several years out.
"Besides wanting to raise debt, it would offer stability [to investors]," Mr English said.
ABN Amro Craigs broker Peter McIntyre welcomed the concept of the Government offering longer-term bonds to smaller investors, as opposed to shorter-term bonds, which generally attracted large institutional investors.
"It's a classic case of offering a return of capital, rather than return on capital," he said of investors who wanted guarantees of capital retention following record-setting sharemarket volatility in recent months.
Billions of investors' capital has been lost in the past two years with the collapse or move to moratorium by dozens of New Zealand finance companies stricken by the credit crunch and the subsequently flight of risk-averse investors.
However, the "key" component of any longer-term government bond offer would be the interest rate, which would have to see the Government increase its margin to make it more attractive to investors, Mr McIntyre said.
On the question of attractive interest, Mr English noted the falling official cash rate and subsequent fall in bond yields, saying they could only be calculated at the time of bond issue.
Mr English earlier told the chamber audience that New Zealand, having been one of the first developed countries to formally go into recession, was already a "year-ahead" in dealing with the problem.
Admittedly New Zealand was faring better than the US or United Kingdom, whose economies are projected to shrink by 5% during the next year, but it was also close to the indebtedness of Iceland and Spain "which was concerning".
Three key economic risks for New Zealand to grapple with are maintaining banking sector stability, export prices and tourism and maintaining a slow and "measured" decline in house prices to "corrected levels", following 10 years of "large gains".
"We're not going for the `sugar shot' such as Australia.
We want to prepare for long-term growth capacity,' Mr English said.
During the last recession, in 1987, New Zealanders were "paralysed" by the events, but this time were showing more resilience, which was "more important than any government policy".
The audience did not shy away from putting Mr English on the spot, asking why jobs did not feature more in the $500 million infrastructure boost announced earlier this week, what the Government could contribute to the Otago Stadium project in Dunedin, and how tourism in Queenstown could be assisted.
While being non-committal about individual projects, Mr English repeatedly responded that there was more infrastructure spending to come.
As the local MP, he had "seen a few opportunities" for some spending around Wakatipu.
