Borrowing and Debt

Some sensible stuff from Bill English on debt.

National finance spokesman Bill English has signalled his party would increase government borrowing to invest in infrastructure such as roads and water.

Borrowing is the totally routine and normal way to fund some capital expenditure.  That spreads the cost of the expenditure over the lifetime of the asset so that all those who benefit from it fund it, rather than just those in the year it is built.  It’s the whole reason it is capital, not operating, expenditure.

English goes on to say:

 “The real limitation is the cost of debt servicing, not the amount of debt.”

Indeed. You look at what the interest (and the depreciation) will do to your income and expenditure and whether it is manageable or not.