So, the Government has adopted a new medium-term target for its net debt - reducing it to 10-15 per cent of gross domestic product by 2025.
Net debt now stands at around 24 per cent of GDP.
Should we see this new target as a prudent exercise in shock-proofing the Government's finances, or as a fiscal hobble that will diminish its ability to meet the needs of a growing and ageing population?
The previous target was to reduce net debt to 20 per cent of GDP by 2020. Labour and the Greens are also aiming for 20 per cent, but two years later.
For years, it has been a constant refrain from National Party politicians that when they took office in 2008 - in the midst, after all, of the worst recession since the 1970s - they were looking at Treasury forecasts of deficits as far ahead as the eye could see, and soaring public debt.
They tend not to mention the starting point. The Crown balance sheet they inherited from Sir Michael Cullen had net core Crown debt of just 5.4 per cent of GDP (even without netting off the assets of the Cullen fund).
The double whammy of the global financial crisis and the Canterbury earthquakes saw that climb to a peak of 25.5 per cent in the 2013 and 2014 financial years.
It has since been heading down again as public spending shrank, relative to the size of the economy - or, as the Government would prefer to say, become better targeted.
Announcing the new debt target last week, Finance Minister Steven Joyce said borrowing the equivalent of 20 per cent of GDP in response to those two shocks had been the right thing to do.
"It allowed us to spread the costs of both events and allowed the economy to recover without extra taxes or without slashing entitlements."
The lesson the Government and its Treasury advisers have taken is the importance of having the "fiscal space" to absorb inevitable future shocks without needing the kinds of austerity measures which have blighted lives in many other developed countries, whose fiscal boats were lying much lower in the water when the GFC struck.
"At 10 to 15 per cent [of GDP] New Zealand will have the capacity to absorb not just one but a couple of big shocks at once if we need to, as we had to last time," Joyce said.
But that begs the question of whether the difference between a target of 20 per cent and 10-15 per cent is worth the opportunity cost of public spending, or tax relief foregone.
We are not talking about trivial amounts of money here. Right now, 1 per cent of GDP is about $2.6 billion.
Say you wanted to keep net debt at 20 per cent of GDP. That is, after all, an extremely low level by international standards.
PM Bill English says past shocks show the need for low debt. Photo / NZME
And let's assume nominal GDP grows by 4.5 per cent a year, which is what it has averaged over the past 12 years. Nominal GDP growth is the combined effect of real growth and inflation and is a rough proxy for growth in the tax base.
In that case, as a matter of arithmetic, a Government would be able to run a (cash) deficit of 0.9 per cent of GDP and still keep the debt ratio at 20 per cent.
Instead, the Government's fiscal priority is to reduce net debt by between 1 and 2 per cent of GDP a year over the next eight years. That will drive the target for the operating balance and limit the scope for capital expenditure.
Now, 0.9 per cent doesn't sound like much. But it is about what the Government spends on defence, or twice the annual cost of the accommodation supplement. That calibrates the scale of the opportunity cost here.
Meanwhile, the population is growing rapidly, fuelled by high net immigration flows and also ageing.
The former increases the strain on housing, schools and other infrastructure, while the latter puts relentless upward pressure on health and superannuation costs.
Council of Trade Unions economist Bill Rosenberg says there is nothing magic about the 20 per cent figure, let alone 10 to 15 per cent.
"If we used a more logical measure of net debt, used by some international agencies, which takes account of the growing New Zealand Superannuation Fund, net debt would be around 11 per cent of GDP now according to data from Treasury's February financial statements," he says. "It would be down to 7 per cent of GDP by 2020. The OECD average is currently over 70 per cent of GDP."
The CTU opposes the more stringent debt target for the same reason it is against the Labour/ Greens' target of limiting public spending to 30 per cent of GDP: the social deficit is already too high.
For example, Rosenberg has estimated that to bring the funding available to the health system back to where it was in 2010 as a proportion of GDP, it would need an additional $1.85b in this month's Budget.
Prime Minister Bill English was asked on Wednesday why a net debt target of 20 per cent of GDP was not enough fiscal space, enough shock-proofing, and what we would get for another 5 or 10 percentage points that was worth the opportunity cost in public spending or tax relief foregone.
"You just have to look at the last cycle to see why we would go a bit lower," he said.
Net debt was in single digits in 2008. "Without pretty good fiscal control it would have got to 30 per cent, which was a benchmark for the debt markets. So if we want to accommodate the same scale of shock as the global financial crisis and the Christchurch earthquake, then we need to go lower."
And why would 30 per cent of GDP be a target for the markets when the OECD average is 70 per cent?
"Well, for the traditional reason the credit rating agencies have always given, which is that New Zealanders have a high stock of overseas debt and because household savings tend to be lower."
