Wellbeing Budget 2021

Our Recovery

New Zealand continues to have some of the lowest public debt in the world…

Our strong recovery means the Government books are in a better position than forecast by the Treasury in the Half Year Economic and Fiscal Update 2020 (Half Year Update). The Treasury's Budget Update shows net core Crown debt peaking at 41.4 percent of GDP in 2024/25, looking through the temporary impacts of the Reserve Bank's Funding for Lending Programme (FLP), as the Treasury recommends. Forecasts for net core Crown debt are well below the Half Year Update forecast peak of 45.6 percent of GDP. Inclusive of the impact of FLP, net core Crown debt is expected to peak at 48.0 percent of GDP in 2022/23, compared to the Half Year Update forecast of 52.6 percent of GDP.

Figure 11 – Net core Crown debt with and without FLP through to 2024/25

Source: The Treasury

Table 5 - Impact of FLP on net core Crown debt

Table 5 - Impact of FLP on net core Crown debt
Year ending 30 June (% of GDP) 2021 2022 2023 2024 2025
Net core Crown debt (including FLP assets) 32.7 38.5 40.5 41.3 41.4
Effect of FLP liabilities 1.3 5.3 7.5 5.6 2.2
Net core Crown debt 34.0 43.8 48.0 46.9 43.6

Source: The Treasury

Debt remains at prudent levels throughout the forecast and projection periods. Even at its peak, New Zealand's net debt as a share of GDP remains considerably lower than the starting point for many of our international peers. The IMF publishes an internationally comparable measure of net debt. This shows New Zealand's debt at 28.0 percent of GDP in 2024, compared to 32.3 percent in Canada, 55.2 percent in Australia, 80.5 percent in the Euro Area, 101.5 percent in the UK and 111.0 percent in the US.

Figure 12 - IMF general government net debt in 2024

Source: IMF World Economic Outlook Database April 2021

New Zealand's careful fiscal management and strong position has been recognised by global credit ratings agencies. Standard and Poor's recently raised New Zealand's ratings, and Fitch and Moody's have maintained their positions.

The level of debt held by a country has traditionally been measured as a share of GDP. However, this measure does not directly assess the costs or benefits that flow from a given level of debt, whether that is through interest payments on that debt or productivity increases resulting from debt-funded investment in infrastructure. It is also important to take into account the real interest costs of public debt relative to the size of the economy, which is calculated as the rate of interest paid on government debt adjusted for inflation, expressed as a share of GDP.[29] Since the 1980s, this measure has been trending downwards for New Zealand. From the onset of COVID-19, the effective real interest rate on government debt has been negative.

Figure 13 - Real interest payments on gross sovereign issued debt as a share of GDP

Sources: The Treasury, Stats NZ

The sustained decline in long-term interest rates has had important implications for the interest cost the Government has paid on its debt (finance costs) as shown in Figure 14. During the 1990s, net core Crown debt and finance costs fell in tandem as a share of GDP. More recently, the two measures have diverged, as the effect of lower interest rates became more of a factor in core Crown finance costs than the overall quantity of debt. Net core Crown debt to GDP is forecast to increase as a result of the economic impacts of COVID-19, and is expected to peak at levels comparable to the 1990s. At the same time, core Crown finance costs as a share of GDP are forecast to continue to move downward and fall below pre-COVID-19 levels. As a result of these changes in economic fundamentals, the costs of debt in terms of foregone private consumption or spending on public services is at its lowest levels in recent decades.

Figure 14 - Net core Crown debt and finance costs

Source: The Treasury


  • [29]This is calculated following the approach described in ‘A Reconsideration of Fiscal Policy in the Era of Low Interest Rates', Furman and Summers (2020).
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