“First and foremost, there is the need to maintain fiscal space for fiscal policy to play a shock-absorber role. That means paying our debt down during normal economic times.”
With these words, Treasury Secretary Iain Rennie signalled a welcome return to sound economic principles in his speech launching the draft Te Ara Mokopuna 2025, the Treasury’s Long-term Insights Briefing on how to manage government finances sustainably.
The Treasury is returning to its role as guardian of public funds. They even suggest supplementing its work with an independent fiscal watchdog.
After years of shifting away from careful economic analysis, this change is overdue.
What stands out in Rennie’s speech is the clear focus on sustainable government finances. He emphasises keeping debt levels manageable to provide flexibility for future crises.
The message is refreshingly straightforward: New Zealand must spend less than it earns “on average over time” and build up savings between economic downturns.
This marks a deliberate shift. Treasury now correctly recognises that interest rates (managed by the Reserve Bank) should usually handle economic ups and downs, with government playing a supporting role only when necessary.
The Initiative has expressed concern about Treasury’s less-than-rigorous approach for several years. We had noted a worrying move away from routinely assessing the costs and benefits of government spending.
Most concerning was the sense that Treasury’s methods were becoming disconnected from its primary purpose. A framework that covered too many bases risked failing to properly evaluate whether spending proposals delivered value for money.
The draft briefing addresses many of these concerns. It shows a renewed focus on financial rigour backed by solid analysis rather than aspirational language.
Treasury’s honest assessment of our debt situation is especially welcome. Acknowledging that New Zealand has spent roughly 10% of GDP per decade responding to crises provides a clear benchmark for responsible financial management.
Most importantly, the briefing emphasises that government responses to crises should be “timely, temporary and targeted.” Economists have long recommended this practical approach as essential for effective government action.
Rennie’s experience during the reform era brings valuable perspective to today’s challenges. His willingness to speak plainly about difficult choices shows the kind of clear-headed analysis New Zealand needs.
If maintained, this renewed focus on economic discipline will make New Zealand resilient against future shocks. It will also help ensure that taxpayer money is spent where it can do the most good.
That is something all New Zealanders should welcome.