NZ govt mulls widening debt target to allow for stimulus

Credit: REUTERS/STAFF

New Zealand's centre-left government on Thursday said it was considering abandoning a hard target for its debt and instead aiming for a wider range that will offer the scope for fiscal stimulus if the economy were to slow.

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WELLINGTON, May 23 (Reuters) - New Zealand's centre-left government on Thursday said it was considering abandoning a hard target for its debt and instead aiming for a wider range that will offer the scope for fiscal stimulus if the economy were to slow.

Citing economic risks at home and abroad, Finance Minister Grant Robertson said the government might commit to keeping net debt in a range of 15% to 25% of gross domestic product (GDP), rather than the current target of 20%.

"A range gives governments more capacity to take well-considered actions appropriate to the nation's circumstances," said Robertson.

The coalition government of Prime Minister Jacinda Ardern has drawn some criticism for setting a hard target that limited scope for fiscal action. By cutting spending, the government has already lowered net debt to 20%.

"A government may choose to move higher up the debt range to combat the impact of an economic recession, or where there are high value investments that will drive future economic dividends," Robertson explained.

"At other times it may be prudent to reduce debt levels to the lower end of the range to provide headroom for future policy responses."

Robertson will formally announce the plan in the country's annual budget on May 30. The new target range would come into effect from the 2021/22 fiscal year.

(Reporting by Charlotte Greenfield Editing by Bill Berkrot and Rosalba O'Brien)

((charlotte.greenfield@thomsonreuters.com; +64212437821; Reuters Messaging: charlotte.greenfield.thomsonreuters.com@reuters.net))

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