NZ is not the US (again)

24/10/2013 § 2 Comments

NZIER (my employer) has released a report today: Fighting fit? Assessing New Zealand’s fiscal sustainability. From the media release:

NZIER recommends that tough decisions around taxes and government spending need to be taken now, and stuck to, in order to avoid a US-like situation in the future when the economic and political costs of correcting debt levels become dangerously high. A bipartisan agreement on funding superannuation costs would be a good starting point….

“Without significant changes, government debt will be almost twice New Zealand’s GDP by 2060, compared to 26.3% of GDP now. That is simply not affordable” said Dr Lees.

I had no hand in the research, and I haven’t reviewed the figures, so I can only take Dr. Lees’s word on those. Two points to make, however.

First, the 26.3% of GDP figure — which looks big, yes — needs some context. The first bit of context is that lots and lots of developed countries are in debt and doing just fine. So, debt in itself isn’t the problem. It’s why we are in debt. That leads to the second bit of context. Here is a graph of NZ government debt, sourced from the hive mind (
The present situation looks anomalous against the previous 20 years, so it probably isn’t a great benchmark.
The second bit of context is that the New Zealand system of government is not like the United States’ (here’s a longer explanation). One is parliamentary, the other is presidential (with a bicameral legislature). The reason that 46 Representatives (of 435) and 6 Senators (of 100) were able to shut down the government is because of the way the different parts of the US government are organised. In New Zealand, the Prime Minister has a ruling coalition. In the US, the President can face a hostile Congress with real power.
Furthermore, the shutdown had nothing to do government spending. If these US politicians were interested in reducing government spending, they would be overjoyed with Obama, who ‘has actually been tighter with a buck than any United States president since Dwight D. Eisenhower’. But the history of actual government deficits/surpluses has little to do with the mythology.

By all means, let’s make sure that New Zealand is fiscally sound for generations to come. But let’s not pretend we’re the US. That bit of rhetoric doesn’t help us understand our own situation.


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§ 2 Responses to NZ is not the US (again)

  • detmackey says:

    Ooooh. NIce. I haven’t read the paper yet, but Morning Report yesterday had what seemed like an indirect quote that it could lead to ‘a US-style shutdown’. Had the same ‘um, what?’ reaction.

    But I don’t think it was the 26.3% that is meant to ‘look big’ but the 200%. Any comment on that?

    Also, might be good to link to the NZIER paper!

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