What's going on with government debt and why an economist says National's plan falls short
Infometrics chief economist Brad Olsen has criticised National's debt reduction target as the bare minimum the party could set. He pointed out that National had previously talked about getting debt down to 20 percent of GDP — the total value of everything the country produces in a year — but is now aiming for below 40 percent. RNZ
National's proposed budget rules, released ahead of the election campaign, commit to returning to surplus — meaning the government earns more than it spends — in 2028/29, reducing debt below 40 percent of GDP, and lowering government spending towards 30 percent of GDP over time. RNZ
Olsen said the spending target was "about right," but the debt threshold fell short. He argued Aotearoa needs lower debt than bigger countries because it is a small island nation with fewer taxpayers, reliant on trading partners, and at greater risk of natural disasters. RNZ
Christopher Luxon said the rules were about resilience: if the government's books were not in order, the country was vulnerable to economic shocks. RNZ
The current government's own debt target, set out in Treasury's New Zealand Government Securities Overview for 2026/27, is to get debt down towards 40 percent of GDP, then keep it between 20 and 40 percent. Treasury National's proposed target sits at the top of that existing range.
Labour finance spokesperson Barbara Edmonds said her party "did what was necessary to buffer the economic shock" and that National's rules would continue the government's current fiscal strategy. RNZ
ACT Party leader David Seymour said National could only achieve its budget goals with ACT's help. RNZ
Luxon separately took aim at NZ First's plan to buy back the Bank of New Zealand, saying it would mean $30 billion of additional borrowing "that the country does not have." RNZ
The fiscal backdrop remains difficult. The Treasury's Budget Policy Statement 2026, released on 16 December 2025, stated New Zealand is in a challenging fiscal position. Treasury The Budget Economic and Fiscal Update 2026 showed the government's bond programme — essentially how much it borrows — decreased by $6.0 billion over the forecast period compared with the Half Year Update. Treasury Reuters reported the government forecast a budget deficit of NZ$15.06 billion for the fiscal year ending 30 June 2026, narrower than a previously forecast deficit of NZ$16.93 billion. Reuters
The longer-term picture is starker. The OECD's 2026 Economic Survey for New Zealand said an ageing population is putting increasing pressure on the government's deficit and that, without reforms, public debt will rise unsustainably towards 200 percent of GDP. OECD
Ahead of the 2026 Budget, The Conversation reported that National had not achieved two of its three big fiscal policy promises from the previous election. The Conversation
The core of Olsen's critique is the gap between National's earlier 20 percent of GDP ambition and the current 40 percent target. The government's existing debt target already includes a 20 to 40 percent range. National's rules essentially commit to reaching the top of that range and no further. For a party presenting its fiscal rules as a discipline mechanism, the target reads more like a floor than a ceiling.
The broader picture here is that Edmonds' claim about National continuing the government's current fiscal strategy is hard to argue with on the numbers. The surplus timeline, the debt range, and the spending target all closely match what Treasury has already set out. So the political contest is less about the actual fiscal settings and more about who voters trust to deliver them, especially given the reported gap between National's previous-election promises and what it actually achieved. Seymour's comment signals that any coalition talks about fiscal targets are likely to face pressure from the right, with ACT positioning itself as the party that would cut spending harder. Luxon's $30 billion BNZ attack on NZ First, meanwhile, hints at the disagreements within a potential centre-right bloc about how big a role the government should play.
The OECD's projection of debt rising towards 200 percent of GDP without reform puts the 40 percent target in sharp relief. If that projection is right, a target that merely holds debt at the top of a 20 to 40 percent range may not be enough to handle the cost of an ageing population. National's rules may be politically defensible. But the question Olsen raises is whether they are economically adequate for the challenges Treasury and the OECD have both identified.
