Whoever's in charge after the September election is going to have to make some incredibly tough decisions around how to pay back the $60 billion the Government's borrowed to get us through the pandemic, a leading economist has warned.
Cameron Bagrie says if taxes don't go up, something else will have to give.
"Government debt is gonna be in excess of 50 percent of GDP. We're gonna have to get that down at some stage," he told The AM Show on Thursday.
The Government earlier this year told Treasury to source $60 billion - three times more than it has ever borrowed in a single year before. Some of it has been spent already on immediate support like the wage subsidy, and much of it will go towards stimulating the economy, which can no longer rely on international tourism and migration.
The borrowing will push New Zealand's public debt to at least 50 percent of GDP - which though lower than many other countries, will be the highest since the early 1990s and twice the post-global financial crisis peak.
The National Party has ruled out the most obvious way of paying that money back - by raising taxes.
"In terms of tax, we're very clear: we don't see the need," leader Todd Muller said earlier this week.
Aside from GST, National didn't raise taxes during the global financial crisis - cutting them at the start of its term - and instead relying on economic growth (much of it fuelled by migration) and reduced spending to pay it back (after years of increases, Government spending flatlined between 2009 and 2014).
But the coming financial crisis will make the global financial crisis look like a walk in the park, Bagrie says.
"If you look at what's built into the fiscal forecast at the moment beyond 2024 is a period of spending restraint which is tighter than what the National Government exhibited between 2010 and 2018.
"We all know the criticism they got way back then - it wasn't spending enough in regard to critical investment, running down critical infrastructure. Well, there are tighter spending constraints now wound into the official fiscal forecast. They're just not credible."
Instead, Bagrie says parties are going to have to raise taxes, sell assets, lift the retirement age and/or exercise "extraordinarily tight spending restraint".
"We're gonna have to go down one of those routes - the issue is, which one's more credible and believable, and what do each party stand for?"
Labour hasn't ruled out changes to the tax system, but is yet to announce its policy. The Green Party - which on current polling might be Labour's chosen coalition partner for the first time after the election - wants new tax rates for those on high incomes - more than $100,000 - and wealth taxes.
New Zealand's top income tax rate up until the 1980s was 66 percent. It's now only half that.