The Reserve Bank of New Zealand recently patted itself on the back, claiming our government debt-to-GDP ratio of around 44.3% in 2024 was "low" compared to OECD peers like the US (113%) or Japan (242%). Sounds comforting, right? Wrong! This smug comparison glosses over a critical reality: New Zealand’s geographic isolation demands a lower debt ratio than our OECD mates, who sit cosy next to their markets. We’re not just another rich country; we’re a small, remote economy dangling at the edge of the world, and that changes everything.
OECD countries like Canada or the UK benefit from proximity to massive markets. They can absorb economic shocks with trade networks that cushion their fall. New Zealand, however, faces punishing freight costs and supply chain vulnerabilities.
A 2020 Treasury report highlighted how our reliance on commodity exports and international debt markets makes us uniquely exposed to global shocks. When crises hit, whether it’s a pandemic, a natural disaster, or a deluded US dictator playing with tariffs, our isolation amplifies the pain. The 2021 IMF World Economic Outlook noted that small, open economies like ours face higher volatility in debt sustainability due to trade disruptions. A lower debt-to-GDP ratio isn’t just prudent for New Zealand; it’s a must have economic lifeline.
The Reserve Bank’s cheerleading ignores this reality. Comparing us to Japan, with its internal debt ownership and massive domestic market, or even Australia, with its mineral wealth and proximity to Asia, is incredibly naive. A 2023 OECD Economic Outlook warned that New Zealand’s debt ratio, while lower than the OECD median, has risen substantially post-COVID, unlike many peers whose ratios stabilised. Due to economic mismanagement, our net core Crown debt is projected to continue to increase to levels not seen since the 1990s. This isn’t “low” when you’re a small island nation reliant on dairy and tourism.
We need a fiscal buffer, not complacency. The 2022 Budget’s own analysis admitted that shocks can rapidly spike our debt, and our isolation leaves little room to manoeuvre. The Reserve Bank’s rosy OECD comparisons are a distraction. New Zealand must aim for a debt-to-GDP ratio closer to 20-30% to weather inevitable storms. Anything less is just gambling with our future.
