Latest / Best of Business / Jenee Tibshraeny: NZ Herald Wellington business editor warns debt uptick will come with additional costs

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Jenee Tibshraeny: NZ Herald Wellington business editor warns debt uptick will come with additional costs · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk SEDB. Follow this
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  Speaker 2: Six thirteen News Talk SEBB. SMP Global Ratings is warning
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  Speaker 2: that all the debt we're going to need to keep
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  Speaker 2: the lights on is going to come at a cost.
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  Speaker 2: Treasury yesterday warned that the government will need twenty billion
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  Speaker 2: dollars more than forecast at the budget in May. It's
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  Speaker 2: extra sixteen percent in bonds than was predicted. And Jane
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  Speaker 2: tips Trainey is with us. She's The Herald's Wellington business editor.
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  Speaker 2: She's been across this story. Good evening, Jane. Nice to
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  Speaker 2: have you back on the show.
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  Speaker 3: Hello, Ryan, good to be here.
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  Speaker 2: Now, what has SMP been telling you?
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  Speaker 3: So, I've just come off the phone with SMP, a
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  Speaker 3: guy called Martin fu Now, you know, credit rating agencies,
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  Speaker 3: what they have to say about the New Zealand government
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  Speaker 3: books matters because our credit rating agent. Credit rating determines
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  Speaker 3: the sort of interest rates that we pay investors who
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  Speaker 3: buy our debt. Now, Martin noted, you know they're still
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  Speaker 3: digesting the numbers. For now, New Zealand's credit rating has
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  Speaker 3: not changed. The outlook is still stable. But he was
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  Speaker 3: surprised by the deterioration of the economic forecast. You know,
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  Speaker 3: the things are not looking as good as previously assumed.
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  Speaker 3: He also made the point that because the New Zealand
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  Speaker 3: government is having to issue an additional sixteen percent more bonds,
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  Speaker 3: additional twenty billion dollars over four years, that's a lot
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  Speaker 3: more than expected. Because of that, he reckons, sure, there
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  Speaker 3: will be investors around the world and domestically who are
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  Speaker 3: willing to buy those bonds, but it'll come at a cost. Right,
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  Speaker 3: So if there are more bonds in the market, the
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  Speaker 3: price of the bonds falls and the yields rise, so
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  Speaker 3: that means we have to pay more interest most likely
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  Speaker 3: to get these bonds sold. So Martin fuh made the
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  Speaker 3: point that, you know, the New Zealand government is not
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  Speaker 3: the only one issuing a whole lot of debt at
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  Speaker 3: the moment us. You know, all through Europe doing the
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  Speaker 3: same thing. There are a whole lot of bonds to
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  Speaker 3: be bought in the bond market. Because of that, the
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  Speaker 3: interest rates, the yields, there will be some upward pressure
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  Speaker 3: on that that will rise a bit, so that means,
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  Speaker 3: you know, we are paying more interest for the debt.
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  Speaker 2: Interesting isn't it, Because then you start thinking, right, you know,
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  Speaker 2: making a decision in isolation to issue bonds is one thing.
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  Speaker 2: You know, to take on more debt is one thing,
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  Speaker 2: But then how what the market situation is like at
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  Speaker 2: the time that you actually do that as another And
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  Speaker 2: that's exactly what you're telling us now. And then does
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  Speaker 2: it make you reevaluate whether, oh, perhaps I should have
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  Speaker 2: cut more spending or perhaps I should have raised revenue.
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  Speaker 3: Yeah, well that's the thing. When COVID came along, interest
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  Speaker 3: rates were really low, so servicing the debt was very cheap,
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  Speaker 3: and everyone expected interest rates to remain low. So we
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  Speaker 3: didn't foresee the sorts of inflation that we've had globally,
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  Speaker 3: which means we didn't foresee interest rates rising as much,
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  Speaker 3: and therefore debt servicing costs rising as much as they have.
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  Speaker 3: So the treasure he thinks that the cost of servicing
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  Speaker 3: the debt could hit about twelve billion dollars by twenty eight,
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  Speaker 3: twenty twenty eight, twenty twenty nine, So twelve billion dollars
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  Speaker 3: in a year. That's that's really high.
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  Speaker 2: And this wasn't a third about health lives, is it?
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  Speaker 3: Yeah? Yeah, well something like that, And you know, we didn't.
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  Speaker 3: We didn't foresee that. The reason fiscal conservatives, conservatives will
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  Speaker 3: say we need to get back to surplus is because
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  Speaker 3: once we get the books back to surplus, we can
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  Speaker 3: start repaying the debt. What we're doing at the moment
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  Speaker 3: is just rolling over the COVID debt and then issuing
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  Speaker 3: more debt on top of that to pay for all
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  Speaker 3: the new spending. And you know, that's fine. We actually
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  Speaker 3: need to keep the lights on in the country. We
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  Speaker 3: have all this infrastructure that we need to invest in,
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  Speaker 3: but it does come at a cost. And other countries
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  Speaker 3: are doing the same thing, and that is putting upward
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  Speaker 3: pressure on those on those interest.
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  Speaker 2: Rates, which gets us to the peak forty seven percent
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  Speaker 2: GDP to debt to GDP ratio that we're expected to
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  Speaker 2: hit on the back of these new forecasts. Right And
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  Speaker 2: you know, you look the pre COVID we were sitting
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  Speaker 2: at around twenty We were always twenty or maybe up
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  Speaker 2: to twenty four, but less than that. Then we went
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  Speaker 2: up to forty. Now we're going to peek at forty
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  Speaker 2: seven percent debt to GDP. Is that how worrying is that?
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  Speaker 2: Obviously it's nothing nowhere near what other countries like Europe, etc.
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  Speaker 2: Are But we're a small trading nation. How vulnerable are
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  Speaker 2: we on that?
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  Speaker 3: Well, that's the exact thing. You know. There'll be people
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  Speaker 3: who say, we can't just go slashing everything because we
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  Speaker 3: need you know, healthcare, and we desperately need investment in infrastructure,
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  Speaker 3: so we can't go not spending money. But on the
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  Speaker 3: other hand, if there was to be another big disaster
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  Speaker 3: or another big event, we are exposed. We're a little island.
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  Speaker 3: We rely on our trading partners. The world is a
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  Speaker 3: pretty volatile and uncertain place. There is arguably greater need
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  Speaker 3: for us to have our books in really good shape
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  Speaker 3: because of our vulnerabilities, peter to other countries like the US,
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  Speaker 3: you know, which have way more debt than we have
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  Speaker 3: even relative to the size of the economy. So it's
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  Speaker 3: a balancing act. And you know, the government has a
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  Speaker 3: national at least has suggested it does want to strike
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  Speaker 3: a good balance and not you know, slash spending at
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  Speaker 3: all costs. Whether they are striking that right the balance
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  Speaker 3: in a good way is the issue that's really up
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  Speaker 3: for debate.
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  Speaker 2: Toenay really good analysis, Thank you so much for that, Janet.
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  Speaker 2: To Trainey Who's New Zealand Herald's Wellington Business editor with
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  Speaker 2: us live nineteen minutes after six on Newstalk sbb SO.
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  Speaker 2: At the moment, it sounds like the rating agencies, the
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  Speaker 2: s and ps etc. They're not panicking about what's going on,
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  Speaker 2: but they do say it's going to cost us because
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  Speaker 2: everyone else is issuing bonds and we're issuing a lot
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  Speaker 2: more of them than we thought. We won't get as
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  Speaker 2: good a prize as mean as we're going to pay
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  Speaker 2: more for the debt that we need to run the place.
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