15 May 2009

Treasury warns debt must be brought under control

7:37 pm on 15 May 2009

The head of the Treasury on Friday warned of lurking threats to economic recovery and emphasised the need to bring rising debt under control - or risk a costly credit downgrade.

A 30% rally in world share markets in the past six weeks has been seen as heralding a turnaround in the global economy.

Treasury Secretary John Whitehead says there are still threats to the world economy, including a looming banking crisis in eastern Europe.

On current projections, Mr Whitehead says the Government will owe $49,000 on behalf of every person in New Zealand by 2023.

He says New Zealand faces being cut off by its creditors and rising debt will only be contained if spending is brought under control.

He is warning that borrowers, including the Government, will face significantly higher interest payments if debt is not tackled.

Council of Trade Unions economist Peter Conway agrees New Zealand faces a threat from a possible downgrade from credit agencies worried about the Government's rising debts.

However, Mr Conway says more damage will be done to the economy - and the Government's books - if spending is pruned too severely to placate the agencies.

The Budget will be delivered on 28 May.