National debt on track to approach 100% of GDP by 2028

National debt is currently running at about 77% of Gross Domestic Product, and is on track to reach 100% of GDP in ten years. This, of course, is in the US.

Reuters: Republican tax cuts to fuel historic U.S. deficits

The deficit – the amount that Washington’s spending exceeds its revenues – will expand to $804 billion in fiscal 2018, which ends on Sept. 30, up from $665 billion in fiscal 2017, CBO said.

The national debt is on track to approach 100 percent of gross domestic product (GDP) by 2028, said the nonpartisan CBO, which analyzes legislation for Congress.

“That amount is far greater than the debt in any year since just after World War II,” CBO said, adding that the debt is now about 77 percent of GDP, a measure of the size of the economy.

The Republican tax legislation, passed by Congress without Democratic support, along with a recent bipartisan $1.3 trillion spending package, are expected to drive economic growth faster than initially expected, CBO said.

The analysis “confirms that major damage was done” by the new tax law and the spending bill, said Michael Peterson, head of the nonpartisan Peter G. Peterson Foundation.

“This high and rising debt matters because it harms our economy,” said Peterson, whose group backs fiscal conservatism.

“During a time of low unemployment and economic expansion, we should be taking reasonable steps to put our debt on a sustainable path – but instead we are piling up trillions of bills,” he said.

The debt picture is quite quite different in New Zealand. For last year’s election campaign Labour made a commitment to continue reducing debt as a percentage of GDP to 20%, albeit taking two years longer than National’s promise.

Finance Minister Grant Robertson has just re-confirmed this commitment.


Question No. 3—Finance

3. Hon AMY ADAMS (National—Selwyn) to the Minister of Finance: Is he committed to reducing core Crown net debt to 20 percent of GDP by 30 June 2022?

Hon GRANT ROBERTSON (Minister of Finance): This Government is committed to reducing core Crown net debt to 20 percent of GDP within five years of taking office, as indicated in the Speech from the Throne. In the Half Year Economic and Fiscal Update (HYEFU), core Crown net debt is forecast to reach 19.3 percent of GDP by 30 June 2022.

This is despite he and Jacinda Ardern sounding alarm at a number of apparently sudden crises claiming underfunding of ‘core services’. Instead of borrowing at near record low interest rates to fund urgent infrastructure repairs and rebuilding Labour will steadfastly lower New Zealand

Hon Amy Adams: So to maintain his debt-to-GDP anchor, why won’t he tell New Zealand which of the Government’s stated commitments and expectations he has raised around teachers’ and nurses’ pay will now have to be dialled back because he’s now simply realised that he’s already run out of money?

Hon GRANT ROBERTSON: The member will just have to wait until 17 May, but what I can be absolutely clear about is that this Government understands the importance of a balance between a prudent fiscal approach and making the investments we need to undo the social and infrastructure deficits left to us by the previous Government.

Hon Amy Adams: Can he confirm that the additional Government revenue available to him for the current year alone, tracked from the Pre-election Economic and Fiscal Update projections to the Crown accounts to the end of February, is in fact an additional $700 million?

Hon GRANT ROBERTSON: The member has been paying attention to the monthly statements from Treasury. The final forecasts are still to be done. What’s important to remember, though, is it’s not so much about how much extra revenue might be available to this Government; it’s about what the last Government didn’t do with the revenue that it had.

Hon Amy Adams: Can he also confirm that the HYEFU shows additional tax revenue over the next four years from that which was predicted in the pre-election update is $6.6 billion more?

Hon GRANT ROBERTSON: There is indeed money available to be spent, and this Government will invest that wisely in making sure that we invest in health and education and housing, not the priorities of the previous Government, which were tax cuts slanted towards the most wealthy.


So debt levels are relatively low, interest rates are very low, Ardern and Robertson have started claiming there are a number of suddenly discovered crises due to lack of funding of core services and infrastructure, but the need is not urgent enough to relax their debt lowering targets at all.

There seems to be confusing signals here.

Newsroom: Labour’s budget rules are holding it back

It’s a very strange political alignment when the trade union movement and Matthew Hooton are in agreement. But that’s what has happened over the past week, with both the Council of Trade Unions and the right-wing political commentator speaking out against the government’s continued insistence on adhering to its Budget Responsibility Rules.

These rules are a self-imposed agreement between Labour and the Greens – signed before the election – to reduce core government expenditure to below 30 per cent of GDP, and to reduce government debt to 20 per cent of GDP by 2022. The upshot of this is the Labour-led government has largely adopted the National Party’s fiscal policies, embracing an austerity-style approach to spending. It means they can’t afford to fund adequately housing, healthcare, workers in the state sector, and public infrastructure in general.

The CTU has been unusually outspoken in criticising Labour’s continued adherence to these austerity rules. President Richard Wagstaff questioned whether the government would be able to deal with the crumbling state of public assets, and whether state servants’ need for pay increases would be properly met.

Although some will write off such criticism simply because it comes from the union movement, it’s worth noting that Matthew Hooton also thinks adherence to the conservative fiscal policy is unnecessary and will cause Labour problems. He’s written a column in the NZ Herald suggesting the Prime Minister and her Finance Minister should “more confidently own Labour’s commitment to higher spending and begin the process of gently stretching out the debt reduction target.”

Labour are being questioned quite widely on their current stance.

3 Comments

  1. PartisanZ

     /  April 10, 2018

    100% of GDP … I imagine the banks will be thrilled!

    And Gee Whizz … Talk in NZ of over-riding the Fiscal Responsibility Act … Wow!

    Guess who else advocates this?

    Professor Jane Kelsey …

    The CTU-Hooton ‘alignment’ is excellent news.

    It must eventually become impossible to maintain these arbitrary, ridiculous ‘Left’ and ‘Right’ distinctions.

  2. david in aus

     /  April 10, 2018

    The US is going to be in a whole load of financial trouble. Exploding debts in the good times with fewer buyers for their debts in the future. Unfortunately, it is going to have deleterious effects on global interest rates.
    There is a beginning of a Pensions crisis in State/Council/Corporate Pension funds in the US and Europe. They are underfunded, as it is, and when the next downturn comes, the s*** is going to hit the fan.
    https://www.bloomberg.com/view/articles/2017-03-24/pension-crisis-too-big-for-markets-to-ignore.

    Global interest rates are the lowest in 5000 years of recorded history, don’t bet on them remaining that way. If governments are smart, they repair their roofs when the sun is shining. Pay off debts in the good times. That goes for individuals as well as governments.

  3. Blazer

     /  April 10, 2018

    shameless clickbait ..headline.