"When you look at constraints on labour right now we should be pushing the technology button big time," Cameron Bagrie says. Photo / Alex Burton
Unlike mortgage and consumer debt, borrowing for business is one area where economists would prefer to see the numbers rising.
More borrowing suggests firms are confident enough to invest in growth and therefore that the economy is in good shape.
More business borrowing also usually means more investment which islikely to lead to higher rates of productivity - something that is much needed to drive New Zealand's economic growth.
Latest Reserve Bank figures show business borrowing starting to rise again after an initial pandemic slump.
But it also reflected issues with supply chains and inventories forcing businesses to rely on debt funding for longer, he said.
"Business is the category we want to see grow," McDonald said. "There is a difference, if you look at business debt over history. The level of business lending as a percentage of GDP is below where it was prior to the GFC and if anything it's trended down over the last couple of years."
Economist Cameron Bagrie agreed.
The overall level is still too low relative to housing debt, said Bagrie, who has launched a new business - Chaperon - aimed at helping firms access bank loans.
"If you go back and have a look at the composition of bank balance sheets they've been progressively lending more into the housing market relative to the business sector for 20 years," he said.
That structural shift accelerated when the banks were required to hold more capital because there was economically more incentive to write a mortgage loan over a business loan, he said.
"We've sort of skewed the lending scrum towards the property market at the expense of the business sector.
"So you can point the finger at the regulator and you can point the finger at banks themselves that have made the decision to chase one sector."
Banks had also been progressively cutting costs, he said.
"They've removed staff that had the skills and experience to lend into a business. Banking in New Zealand has become very vanilla."
Businesses also needed to take a look at their own attitudes to debt, Bagrie said.
"A lot of businesses, not all, but a lot need to lift their game in terms of what I call their bankability."
They needed to get better at putting in loan applications and better at telling their stories, he said.
Businesses needed to invest more to improve their productivity.
"When you look at constraints on labour right now we should be pushing the technology button big time," he said.
"One of the hopes I have is that out of the housing mess that we're heading into [and it is going to be a mess] is that the low-risk sector has been housing...and it's suddenly the high-risk sector.
"I think the landscape for housing as an investment has fundamentally shifted.
"So maybe with this downturn we're heading into we'll start to take a few steps forward with regard to investing in the real productive sector of New Zealand."
Coming up - Every day this week we'll take a deeper dive into the debt levels of different sectors including housing, consumer, agriculture, business and Crown borrowing
By the numbers: • That big ugly number in our graphic ($772b) is New Zealand's total gross debt. • It combines the latest Reserve Bank figures for private debt with Treasury numbers for Crown debt and Local Government Funding Agency data on council debt. • The Reserve Bank figures include housing debt, consumer debt, business debt and agricultural debt to June 30. These are updated monthly by the central bank as part of its brief to monitor and maintain financial stability. • The Crown debt figure is taken from Treasury's Interim Financial Statements to May 31 and is the figure for Core Crown Borrowings. • This is different to the Net Core Crown Debt figure often used by politicians when they talk about debt-to-GDP ratios. • We use this (on Treasury's advice) as it is a gross debt figure but excludes debt held by state-owned enterprises which would have been covered off in the Reserve Bank statistics. • Finally, the debt figure supplied by the Local Government Funding Agency is gross debt for the year to June 30, 2022. • It captures all core council activities (Watercare, Auckland Transport etc) but excludes some commercial activities (e.g. Christchurch City Council's Orion lines company, Port of Lyttelton, Christchurch Airport) as these would also be included in RBNZ data.