Over 350 people registered for this webinar with Dr Geoff Bertram on Saturday May 23. He started by debunking the dominant austerity narrative which says that government spending resulting in deficits must mean either borrowing or  "money-printing", which respectively either is a "burden on future generations", or inevitably leads to hyperinflation. That leads to a confusing argument that it is a strong Crown balance sheet with relatively low debt that provides fiscal space to increase spending. But it is Covid, not low Crown debt, that has opened up the fiscal space.

The mistake is to treat core Government like a household, that can spend only if it has cash in hand or a loan available. A sovereign currency-issuing Government is not like a household - its spending does not have to be financed in advance, and in the current downturn money creation is not inflationary. The New Zealand Government has monetary sovereignty - it issues its own fiat currency and collects taxes in that currency, it has a floating exchange rate, and no significant foreign-currency denominated debt. One constraint is the economy's dependence on oil priced in US dollars, but the current price is low and there is an over-supply.

He discussed money creation and debt, concluding that the 'burden' is about distributional issues and those issues are important - ongoing transfers from taxpayers to rentiers may not be in the long-run interest of society. Faced with Covid, fiscal space has opened up, and what is now needed is injection of demand via direct government purchases and transfers of cash to private households and firms  to enable them to purchase goods and services.

In future there might be inflationary pressure if the economy is pushed to genuine full employment (where it has not been for the past decade). He described five possible policy responses looking ahead to 2024. Treasury projections indicate a planned return to austerity. Bertram contends new Zealand needs to sustain a larger state sector which in his view means taxes on wealth, carbon and higher incomes to open up fiscal space. Preparation for those future tax changes needs to be done well before 2024.

This is but a summary of a fascinating webinar. You can watch the video of the webinar on YouTube here. Slides are here, and podcast is here.

Additional information