‘Hard-head’ Treasury Secretary Iain Rennie issues debt and shocks warning

Monday, 3 March 2025

Treasury Secretary Iain Rennie has issued a stark warning: New Zealand needs to get its public finances in order and plan for a shock worth 10% of gross domestic product every decade.

In an exclusive interview with The Post Rennie, who returned to Treasury in November after a 17-year hiatus, said he wants the Treasury he leads to be the hard-headed, sceptic of Government policies which ministers expect it to be - but with an eye to the future.

Building on a speech given at the New Zealand Economics Forum at the University of Waikato two weeks ago, Rennie said the key thing for the country was moving two curves: New Zealand’s productivity curve upwards, and its debt curve downwards.

In our interview I asked directly if there was a risk that unless New Zealand got its structural deficit under control it would be a less prosperous place for our children.

“I think the the short answer is yes, there is that risk I think on the fiscal side,” he says.

It’s not about the ratios

“Particularly with productivity rates at very low levels, that's a real risk. We're not the only country facing this challenge, but because we are less wealthy than many of our compatriot countries, it's really more important for us to have the quality of the policy environment to ensure that our our kids are indeed wealthier than we are.”

It is a blunt warning from this affable - but clearly focused - public servant. He is not a man bogged down by bureaucrat-speak or waffle.

“So for me, a lot of the stuff about debt, etc, it's not about just the ratios looking good and rating agencies being happy. It's about for us, being able to have a stable, resilient community in which we can all thrive over time. And that, for me, is the big game.”

And the amount that New Zealand needs to plan for, Rennie says, is 10% of gross domestic product per decade.

“That's equivalent to, essentially, the Crown's contribution post the Canterbury earthquakes. So, you know, one or more shocks adds up to that.

“We're in a world where we're just going to get more of these kind of shocks, rather than less. And so we have to be well-prepared as a country.”

This is a number that should make any Government sit up and take note.

On the productivity side, he said Treasury had a key role in identifying areas with the most payoff, where government could make changes, while the likes of the Commerce Commission, new Ministry for regulation and other agencies could “do the deep dive”.

“I think for us, it's, it's being able to kind of say this could be where the big prizes are. And then there's a choice for government about what lever it pulls to get into those.”

And the challenges are real. The New Zealand Government currently has what is called a “structural deficit”. This means that, stripping out shocks and any big one-off costs, Government is currently set up to spend more than it takes in in taxes - this gap is covered by borrowing.

The ratchet effect

In the latest Treasury Update in December - the first fronted by Rennie as Secretary - total Crown revenue is forecast to be $169 billion in 2025, while expenses are slated to be $186 billion.

While a small Budget surplus is forecast for 2029, it leaves New Zealand a long way form being able to repay its net core Crown debt which ratcheted up from $60b in 2015 to a forecast $192b in 2025 and still climbing to $234b through to 2029. It is currently 42% of GDP, back up to where it was in the early 1990s before the Bolger, Shipley and Clark-led Governments paid it down seeing it reach just 5% by the onset of the global financial crisis.

Getting this number down, along with getting productivity up, is what the Treasury - the first among equals of Government departments - will be focusing on under Rennie, although he is quick to point out that it is not the Treasury’s role to make decisions: that is the job of elected politicians.

And ratchet is a key word.

“It can literally ratchet up … if you look back in our history, in the early 1970s, we had very low levels of debt. And then, essentially, over two decades, it got to somewhere from about 5% of GDP to over 50% of GDP over two decades.”

Rennie says that that that was driven by shocks - as has the current situation. Since 2008 he rattled off the global financial crisis, Canterbury earthquakes and Covid-19, along with what he calls the “second-level” shocks of the Kaikōura earthquake and cyclone Gabrielle.

Making hay

“It's been very hard for the governments over that period of time to deal with the shocks, and then, if you like, make hay while sun shines. Because essentially, we haven't had long periods where the sun has been shining. And that's the risk.”

While he says that New Zealand’s debt is currently still at internationally low levels, there are a number of reasons New Zealand cannot afford to ramp debt up in the way other countries so

“There’s lots of advantages for New Zealand to be relatively a low public debt country, because we are exposed to the kinds of shocks that most of our peers in advanced economies don't have to worry about.”

“We face … potential biosecurity shocks. We live on tectonic plates, we've got volcanoes, as well as all the global stuff, like pandemics.

“So fundamentally, our risk profile is different than most of our peers, and certainly the very large economies who, in some senses, can get away with very high levels of debt as they are at the moment.”

Getting debt managed properly is not just about dealing with the unknown shocks but the known cost pressures coming down the line over the next few decades.,

“In addition to that … we've got these very big, long-term issues about demographics, and we've kind of struggled to deal with them successfully,” he says.

Back at the Treasury

Rennie, aged 60, celebrated the 39th anniversary of his starting to work at Treasury in 1986 last week. He cuts a relaxed shape around the Treasury offices. He is sans tie, a tad crumpled but open and engaged with questions. This is not always the case with public sector leaders, some who seem terrified of media or deal with it by way of saying little of substance.

A familiar face in the public service, Rennie worked in Treasury until 2007 which included stints working on what would become The Reserve Bank of New Zealand Act and a time seconded to the office of leader of the opposition and then Prime Minister Jim Bolger in the early 1990s.

“I'm very focused on the fact that the Treasury is an important institution to serve successive governments - whatever their make up - and to do that necessarily means to think about how New Zealand can be the best version of itself,” he said.

“Our role is to be a bit of, if you like, the in-house sceptic. That's our role as a ministry of finance, and should always be the case, and that's what ministers and successive governments want from us - you know, a bit of the hard head.”

“That makes us probably a little bit more cautious, because we kind of always ask, what's the evidence … How do we know this?”

But, he says, in addition to remaining hard-headed and cautious in the near term, the question is thinking longer-term.

“The challenge for us, you know, keep the hard head, keep the scepticism, but also that ability to kind of say, okay, where does this country, where could this country go, depending on where its political leadership wants to take it - through the domains that we work on.”

Working on the right things

He also says that reform within the public service - and Treasury itself - will be needed, echoing similar comments made by Sir Brian Roche in recent speech. Good people, but a system that needs to change.

“I think the public service system that we put around those people and organisation around those people is not best suited, in all cases, to get the best out of them.

“I think over, over time, you know, we've layered on a whole lot of new systems and processes.

This, he said, had lead to the institution spending lots of time on incremental and small changes as opposed to thinking about the big picture. He said advice needed to be more accessible for ministers and the public and that Treasury had been slow in the uptake and application of new technologies such as artificial intelligence.

“So for me as an organisation, what I think we need to be better about, is being able to deal with the here and now, but having a very sharp focus on the really big issues New Zealand governments are going to have to pay attention to over the next 10, 20 years.”

Rennie rose through the system becoming State Services Commissioner (now called Public Service Commissioner, currently held by Sir Brian Roche) from 2008 to 2016 before leaving the public service and doing economic consulting around the world.

The latter, he said, was like a “middle-aged OE” and gave him a keen insight about the geopolitical changes that would be washing up on New Zealand’s door step.

“I saw a whole lot of interesting countries, and I didn't have to do that backpacking or travelling economy.”

He worked a lot in the Middle East and the Pacific, where he saw geopolitical threats and foreign involvement in the Pacific “in very real direct ways”. Working outside the New Zealand system and with other Governments and international organisations “really challenges you, but also gives you new ideas”.

Devil is in the demography

He either meets in person or speaks with Finance Minister Nicola Willis several times a week.

“We talk a bit about, you know, the overall agenda. There'll be some specific kind of policy issues that are on the go. And obviously, you know, we talk about the budget as it goes through.”

But one of the longer-run issues Rennie talks about is demographics. The institution made waves last September after an arresting speech by Deputy Secretary Dominick Stephens, while Rennie’s predecessor, Dr Caralee McLiesh, was still secretary.

In it, Stephens laid out the big demographic crunch coming New Zealand’s way.

In the 1960s there were seven working New Zealanders for every person over 65. Today there are four and in 50 years it is projected to be just two. The only thing that has really allowed budgets to keep up is the massive increase in people over 65 staying in the workforce.

Stephens also hit upon the political reality of debt.

“New Zealand’s recent experience illustrates a classic issue experienced by many countries: fiscal policy is typically easier to loosen in a downturn than it is to tighten in an upturn. This ratchet effect can create a bias towards increasing debt over the long term,” Stephens said in the speech.

It’s a theme the Treasury is clearly keen to try to make sure the public knows about.

It is also something that Finance Minister Nicola Willis has been trying to navigate within the confines of the Coalition and the Government’s assessment of political risk. Spending has continued to increase under Willis, albeit at a slower rate of growth

“Those are not issues that are going to be resolved politically tomorrow six months or two years time,” Rennie said.

They're probably going to be evolved over two or three electoral cycles, at least. So for me, the debt being manageable gives, if you like, the wider political discourse, time to work, work its way through and land wherever it's going to go and land.” Rennie said.

At home in the garden

Outside of the office Rennie is a keen gardener, something he says he inherited form his parents. His is married and has a 13-year-old soon who has gone to college this year.

“Family’s really important for me,” he said.

Rennie recently bought a property between Carterton and Masterton - “a 15-year project to to transform it into into something beautiful”. This is what one of the the most powerful public servants in the land does to relax.

Compared to the sometime conceptual world of the Treasury, “there’s nothing brings you down to earth like digging, pulling things out”, he said. “And it’s great exercise too.”

But how exactly does a Secretary to the Treasury actually spend his day?

Rennie said it was s a lot of outward looking things - working with other agencies, ministers and parts of the broader public sector and, of course, “supporting the Minister of Finance as she gets over the line with her colleagues around literally hundreds of spending and saving decisions that go into our budget”.