Moving from Deficit to Surpluses: The New Zealand Experience

May 12, 2005
B-339 Rayburn House Office Building


Dr. Bryce Wilkinson
Director and Founder
Capital Economics

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Regardless of their political leanings, policymakers, pundits, and the public generally agree – the United States is in the midst of an immediate and long-term fiscal crisis.  Multiple economic forecasts indicate that current levels of spending growth are unsustainable without significant alterations to tax and/or benefit formulas.  With all the competing special interests and political pressures bearing down on Congress, can the United States ever expect to see budget surpluses again?  

Not so long ago, in 1984, New Zealand faced similar fiscal challenges.  In their case, the country experienced 23 years of budget deficits, rapid inflation, high interest rates, and low international confidence in their currency.  After a series of dramatic accountability reforms, the government began running surpluses and the public debt was significantly reduced.  Today, twenty-one years after the beginning of the reforms (and despite some backsliding), New Zealand remains an excellent success story.  How did this happen?  How might the New Zealand experience inform the ongoing debate over America’s current fiscal crisis?

To better understand fiscal responsibility and the way it was implemented in New Zealand, the Mercatus Center proudly sponsors this Distinguished Scholar Seminar featuring two “insiders” - a statesman and an economist - who grappled with New Zealand’s crisis first-hand.  Questions to be discussed include:

  • After 23 years of successive deficits, what was the New Zealand recovery experience like and how did it happen?  How can these lessons inform American policymakers?
  • Is it possible to continually produce surpluses instead of deficits?  Do surpluses produce a danger of their own?
  • Is the strategy for dealing with surpluses as important as the strategy for managing deficits?