It's 'Christmas' for borrowers, so why aren't councils borrowing?

While most mayoral candidates promise to slash spending, an economist is proposing they do the exact opposite. 

Cameron Bagrie says central Government shouldn't be the only one ramping up spending in a low-growth, low-interest rate economy.

"Normally when you get an economy that's struggling, the first port of call is the Reserve Bank - and the Reserve Bank has been cutting interest rates," he told The AM Show on Monday.

"The second port of call is we normally expect central Government to spend a bit of money. The money's really starting to fire out the door at the moment. Government spending is up about 7.5 to 9 percent in the September quarter, versus last year. So they're starting to dole a little bit out.

"But we don't really talk an awful lot about local government...  I think local government's got a pretty big role in regards to stabilising the economy and improving prospects for some regions out there, because some regions are really struggling at the moment."

Economic growth in New Zealand is at about 2 percent - not bad, but not exactly the 'rock star' pace it set in the post-global financial crisis years. Economist Shamubeel Eaqub last week said it was preferable to the alternative.

"Typically we have strong economic growth and then we have a sudden kind of downturn, then we pick back up again," he told The AM Show on Thursday. "But we've had this very gradual, everything's been very slow, kind of slow-moving, very sluggish. It's been a very weird cycle - not like anything that we've experienced in living memory. It's very gradual."

Cameron Bagrie.
Cameron Bagrie. Photo credit: The AM Show

Bagrie says local governments - particularly those in struggling regions like Taranaki, which has 6 percent unemployment - should take advantage of low-interest rates and borrow money to invest in infrastructure.

"Taranaki is a pretty wealthy region, but... their two big economic engines - oil and gas, and dairying - are really going to be struggling. It's going to take a little bit of time for Taranaki to find plan B. 

"Central Government's given a little bit of money, but it's chump change."

The Provincial Growth Fund allocated $20 million earlier this year to help shift Taranaki's economy away from oil and gas. 

"$20 million into the region is a bit of a joke, to be perfectly honest. It's not going to turn the dial," said Bagrie.

"I think there's a real role for the likes of New Plymouth City Council to get out there and spend a bit of money over the next two to three years to help stabilise the region, keep them on a straight footing. It's pretty tough in the political arena to spend money when times are tough, but that's exactly the time you want the local authorities to get out there and spend money - when the private sector is struggling."

Primary industries like mining, fishing, forestry and agriculture make up nearly half of Taranaki's economy. Bagrie says local authorities across New Zealand have low-debt-to asset ratios and can afford to borrow, with the official cash rate at a record low of 1 percent.

"Step back and look at the bigger picture here... It's been Christmas in regards to the opportunity to borrow a bit more money to invest for the future." 

Newshub.

 

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