Quote:
Originally posted by LFC
Can anyone explain to me why getting into debt to fund tax cuts is a good thing, my gf was saying that it is they way all businesses work, borrow money to fund growth in the economy.
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There are lots of reasons why this can be a good idea.
Bear in mind National are only planning to fund some infrastructure like this. Infrastructure lasts for fifty plus years.
So, one reason for taking out a loan and paying it off is that this creates more equity between generations of tax payers. Those yet to be born will benefit from such expenditure and in a fair society should thus help foot the bill. The overall cost goes up a bit but the equity between generations of tax payers improves far more.
Another reason is that Governement debt is very secure and some businesses need long-term investment opportunities to manage their own risk. Life insurance companies are in this boat. Here Governement borrowing is almost like a social-service for companies needing long term safe ways to invest. In some countries where governements no longer need to borrow, they do continue to borrow for this exact reason. It's not just companies that benefit from Governement debt either - pensioners (with assets) can too since they can lend the Governement a lump-sum and effectively get a pension back with no risk of default.
Governement debt is very healthy if it's managed properly.