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Tax increases 'inevitable' to pay for Covid-19 bill, with net debt expected to rise to $170 billion - economist

Economist Cameron Bagrie expects net Government debt to rise from $70 billion to $170 billion due to Covid-19, adding that "odds are it's going to get worse as the years move on". 

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"The key issue here is how quickly is the economy going to go back to pre-Covid levels? I suspect it's going to be quite some time,” he said. Source: Q+A

It comes as Budget 2020 is set to be released on Thursday, with the Finance Minister warning deficits would run for an extended period and debt would increase "well beyond our previous targets". 

Mr Bagrie thought the Covid-19 crisis could cause fiscal deficits of $30b and borrowing to go up to $40b. 

“That’s the sort of numbers we’ve not seen in certainly my working lifetime in New Zealand."

When asked by TVNZ1's Q+A host Jack Tame what he expected in the Budget, Mr Bagrie said there had already been "a lot of money gone out the door in regards of support". 

"The wage subsidy is very expensive but it’s kept a lot of people in paid work. The million dollar question – are they going to extend it? Or a slight modification?"

"Mr personal view would be to make it a loan scheme as opposed to a hand out scheme."

He said more support would be needed for the job seeker benefit, with at least another $5 billion needed in the next five years. 

Mr Bagrie said the Government had a range of options to pay for the Covid-19 response including borrowing more, which would put a liability on the next generation. 

Asset sales could be an option, but "politically there's no way," he said.

At some stage tax increases would be "inevitable" and issues such as raising the retirement age needed to be considered, Mr Bagrie added

Growing the economy was the ideal scenario, however he said that was "easier said than done".