Finance Minister Grant Robertson will deliver this year's Budget on Thursday. Photo / NZME
Finance Minister Grant Robertson will deliver this year's Budget on Thursday. Photo / NZME
COMMENT
The pre-Budget speeches of the finance minister have indicated he will deliver a Budget this week that is fiscally conservative with reduced spending and will prioritise debt reduction, based on a debt-to-GDP ratio that he obviously considers too high.
That government debt could be halved overnight if he took out the debt the Government owes to itself.
The Reserve Bank, an arm of government, is holding about $60 billion in government debt – the bonds it has purchased off banks and other investors on the secondary market.
How is it that money owed by the Government to itself is considered a debt?
It's like borrowing from your own savings account to buy something in cash and then saying you're in debt and you have to pay yourself back. It's nonsense.
The Government could write off that pretend debt overnight and nobody would be any the worse off.
Social Credit leader Chris Leitch. Photo / Tania Whyte
Former National prime minister Jim Bolger understands that.
He had this to say on Radio NZ on July 15 last year: "We need to bring a policy approach to address the enormous economic issues that New Zealand now faces with the Covid-19 and all the spending that the Government have engaged in - billions of dollars here in New Zealand that were just created by the Reserve Bank.
"We have to decide whether to follow traditional economics and pay that off over the next 20 years by austerity politics or we actually say we owe it to nobody - we created it, the Reserve Bank has created it, and we write most of it off."
The Treasury and the Reserve Bank understand that. They jointly presented an "aide-memoire", titled Quantitative Easing and Monetary Financing Compared, to the finance minister in May 2020.
Former National Party leader and prime minister Jim Bolger. Photo / NZME
The report says monetary financing could be used to "meet specific funding needs of the Government at lower cost and with greater certainty than QE (quantitative easing – buying bonds on the secondary market)".
Monetary financing means using money creation by the Reserve Bank, which the Government owns, to finance government spending.
Instead Labour continues to borrow from the commercial banks and other money-market players who will pocket a cool $11 billion profit from "clipping the ticket: on those transactions.
Taxpayers are already in the gun to pay interest on that borrowing and debt repayment and in addition, Mr Robertson wants to divert taxes away from hospitals, schools and infrastructure so the Government can pay itself back $60 billion it owes to itself.
Alice in Wonderland's Mad Hatter would have a field day with such stupidity.
• Chris Leitch is leader of the Social Credit party.
