Debt argument misses the Sovereign Credit solution

The NZ Herald launching their Debt campaign to frighten the bejesus out of Kiwis before the election was pretty predictable.

Liam Dann claimed NZ owed $937.5Billion in debt – no we don’t.

The amount is $700billion while we are owed $500billion, so our net debt position is actually $200billion.

The majority of our debt isn’t Government debt, it’s mortgagee holders of inflated house prices.

2/3rds of Kiwis polled said they don’t mind paying more tax if that money is spent on health and education!

The Political Right demonise debt because their project is to run down public services until privatisation looks like the solution!

Don’t believe the hype, Public Debt can and does work to build up the physical infrastructure, it is the Right who want to pretend it doesn’t because they don’t want to take in more tax and debt so there is nothing to redistribute in the first place!

Time for the NZ Left to look to Savage to rebuild NZ using Sovereign Credit

The greatest mistake Labour did over Covid, was that they borrowed the money from private banking rather than do what Mickey Savage did, create Sovereign Credit!

In the 1930s–40s, the first Labour Government (Savage & Fraser) used the Reserve Bank to directly finance social housing, infrastructure, and employment schemes. This was sovereign credit creation — money issued into the economy for public purposes.

New Zealand used sovereign credit creation in the 1930s for housing and recovery. Since the late 20th century, reforms locked us into a bond-based system to satisfy global financial orthodoxy and inflation fears. The difference is simple: bonds create debt to outsiders, sovereign credit creates money internally.

Why borrow from private banks when we should be directly creating sovereign credit to build the vast infrastructure deficit and climate adaptation investment net we face.

Consider the actual borrowed debt vs sovereign credit…

…so what would happen if NZ created sovereign credit now?

• If the Reserve Bank or Treasury created credit for targeted, productive investment(say, green infrastructure, affordable housing, climate resilience):

  • The economy could benefit from extra capacity and jobs.

  • Inflationary pressure would be limited if the spending matched real productive needs.

  • International markets might notice but wouldn’t necessarily “punish” NZ — especially if debt-to-GDP stayed stable.

If NZ created sovereign credit now for targeted, productive investment, markets might grumble but wouldn’t punish us severely — especially if inflation stayed under control.

We could back this Sovereign Credit using ACC and KiwiSaver:

• ACC Fund: ~$50 billion+ investment portfolio to meet future injury compensation liabilities.

• KiwiSaver funds: ~$100 billion+ in private retirement savings, invested across shares, bonds, property, etc.

How backing sovereign credit with them could work:

1. Collateralisation model

   • The government issues new sovereign credit (say $10 billion for housing or climate infrastructure).

   • To reassure markets, it pledges that this credit is “backed” by the assets of ACC or KiwiSaver (effectively saying: if inflation gets out of hand, or repayment is needed, we can draw on these assets).

2. Investment direction model

   • Instead of using them as collateral, the government could require ACC or KiwiSaver funds to buy sovereign credit instruments (like 0% or low-interest bonds).

   • This would channel domestic savings into public projects instead of relying on offshore investors.

3. Hybrid public wealth fund model

   • NZ could merge sovereign credit issuance with a sovereign wealth approach — creating credit but investing it in productive, revenue-generating infrastructure, and having ACC/KiwiSaver co-invest.

   • That way, the projects themselves generate returns to repay the credit, limiting inflation risks.

None of what I am suggesting is new, Mickey Savage used it to build NZ and Postive Money has been making these points for a long time:

Positive Money NZ is the New Zealand branch of the international Positive Moneymovement (originally UK-based). Their core aim is to change who creates money in the economy.

At present:

• About 97% of money in NZ is created by commercial banks when they issue loans (especially mortgages).

• Only ~3% is physical cash issued by the Reserve Bank.

Positive Money argues this system:

• Drives house price inflation (since most new money goes into property lending).

• Makes the economy unstable (credit booms and busts).

• Privatises the benefits of money creation (banks profit, not the public).

Labour, Greens and te Parti Maori need radical solutions to the many problems we have, investigating Sovereign Credit to build our infrastructure and climate adaptation is one of those radical solutions.

 

 

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