Government should borrow and invest now, says economist

The AM Show 12/10/2018

The prospect of slowing economic growth should be a "trigger" for the Government to borrow and spend, says one of the country's leading economists.

The latest Infometrics forecast predicts disappointing growth over the next two years, with business confidence down, housing values plateauing and petrol prices eating into consumers' disposable income.

Economist Bernard Hickey told The AM Show on Friday that New Zealand has had a recession every year ending in eight for the last 50 years.

"Now that's the equivalent of astrology when it comes to economics, but certainly it's not unusual for things to have a bit of a downturn - but most people think we're going into a period of slower growth - from 3 percent to 2 percent."

While this means no recession, Mr Hickey says the Government - fresh off reporting a massive and unexpected surplus - should act like there is one.

"His [Finance Minister Grant Robertson] Budget responsibility rules give him room to actually pull the trigger and invest some money if the global economy is in a downturn - I actually think there's reason enough to do it now.

"Remember we've had this 10 percent population shock in the last five years - we didn't plan for it, we haven't got the infrastructure... Use your fiscal headroom, that borrowing room to go out there. Remember New Zealand can borrow now at 2.6 percent."

He says New Zealand's credit ratings would let us borrow as much as $30 billion.

"Do they [the Government] back themselves and invest in Auckland and all the infrastructure that's necessary, or do they get nervous about the future?"

Tax cuts delivered by the previous Government in response to the 2008-9 global financial crisis didn't go into spending, Mr Hickey says, because they largely went to middle- and high-income households, who used it to pay down debt and put into savings.

But the present Government, he says, is making a similar mistake in trying to get money out of the public with initiatives like the petrol tax, rather than borrowing at low interest rates.

"One of the problems with the Government right now is all the things it's actually done so far - apart from the families package - have been regressive. They've hurt those at the lowest end the most."

Watch the full interview with Bernard Hickey above.

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