Peter MacDonald
When Finance Minister Nicola Willis returned from London and New York recently, she emphasised that international investors remain confident in New Zealand’s finances. Fitch Ratings reaffirmed our AA+ credit rating, praising fiscal prudence while cautioning against reckless spending. The minister pointed out that the government’s annual interest bill stands at nearly nine billion dollars, financed by the work, productivity and taxes of everyday New Zealanders.
At first glance, these are standard statements about sovereign debt and investor confidence. But when you dig deeper, a striking reality emerges: the system is a vast, self-perpetuating money loop, where the labour of ordinary Kiwi citizens funds guaranteed windfalls for wealthy institutions both domestic and international with very little overhead.
How government bonds (debt) work:
A government bond is issued whenever the NZ government borrows money from a lender. That lender could be an overseas institutional investor like BlackRock, a domestic bank or even a KiwiSaver fund. In return, the government agrees to pay regular interest and repay the principal at maturity. This is effectively national debt and the annual nine billion dollar interest is the cost of servicing it. For big institutional investors, it’s an almost risk-free windfall: the government guarantees repayment of both principal and interest, even if the country’s finances are strained. In other words, they are paid first, regardless of whether taxpayers are struggling to meet the bill.
This guarantee is why investors from London and New York view New Zealand bonds (debt) as a sure thing a financial arrangement, where their profits are virtually assured while ordinary citizens carry the burden. It’s a system that secures returns for the wealthy at minimal risk, funded by the productivity and taxes of the working population.
Approximately 45 per cent of NZ government bonds (debt) are held overseas, by investors in London, New York and elsewhere, including BlackRock, PGIM, IFM Investors and sovereign wealth funds. These institutions collect guaranteed interest payments funded by New Zealand taxpayers. The remaining 55 per cent is held domestically by banks, KiwiSaver funds, insurance companies and even the Reserve Bank, so a portion of the interest recirculates locally.
The system is strikingly circular: citizens labour – blood, sweat and tears as Churchill used to say of the British working class – funds the government, which pays interest to bondholders, some of which returns to domestic investors, while a large portion flows overseas.
John A Lee and early monetary innovation:
This dynamic is not new. In the 1930s, John A Lee, a Dunedin-born MP and WWI hero who lost an arm on the Somme, recognised the structural problem of debt dependence. Grounded in Christian social principles, Lee helped design the first Labour Government’s welfare policies under Michael Joseph Savage, including state housing and the ‘quarter-acre section’ – giving ordinary families land to grow food and homes as part of a public good system – and social credit experiments: Lee issued a NZ five pound note directly to families at Christmas, free of debt obligations to banks. These notes were printed on government-owned presses, saving the costs of having the British Treasury print New Zealand’s currency.
Lee’s ideas were inspired in part by the Bradbury Pound (UK, 1914), a form of state-issued currency designed to circulate without creating interest-bearing debt to private banks. Like the Bradbury Pound, Lee’s social credit initiatives sought to provide liquidity (cash) directly to citizens and fund public projects, bypassing external financiers.
Why he was expelled:
Lee wanted to expand monetary reform and reduce NZ’s reliance on foreign lenders and the associated interest obligations. His proposals were too radical for Labour’s leadership, who preferred conventional debt-financed policies. This conflict ultimately led to his expulsion from the party, despite his successes in housing, welfare and innovative monetary policy.
However, before his expulsion, Lee arranged for the printing of one million pounds in government-issued money to fund public works and welfare initiatives. This was part of his broader effort to reduce reliance on private and international debt while ensuring public money directly served New Zealanders.
Fast-forward to today: your wages, salaries and business taxes finance government operations and service debt. Interest payments flow to overseas and domestic holders of government bonds (debt), generating guaranteed profits for those with capital, while the labouring population funds both government services and the returns to investors. Every dollar paid in interest on government bonds (debt) comes directly from taxes on wages, salaries and business activity. In effect, ordinary citizens are paying twice: once to fund public services like hospitals, schools and infrastructure and again to ensure that domestic and international bondholders collect their guaranteed interest payments.
This is the fundamental loop Lee sought to challenge: money generated by the productive efforts of the population is largely recycled to enrich capital holders, while the average worker carries the financial burden.
Lee foresaw this system and proposed alternatives that would retain wealth locally and reduce dependency on international financiers. His vision resonates today, as the current structure continues to favour capital holders while ordinary citizens carry the obligations.
A call for awareness:
From Nicola Willis’s investor briefings, to John A Lee’s 1935 social credit notes and one million pound public-works currency, the story of NZ debt is consistent: who controls money, who benefits and who bears the burden matters... Understanding the flow of taxes, government bondholders (debt) and domestic and international investors is crucial for citizens concerned about sovereignty, fairness and the public good. Only by becoming aware of how the wealth generated through their labour is used both for public services and for profit, and who benefits most from this largely hidden arrangement, can New Zealanders push for meaningful future monetary reform. Awareness is the first step toward reclaiming control over a system that currently guarantees returns for financial elites while placing the burden squarely on the working population.
John A Lee’s work on monetary reform, Simple on a Soapbox (1963):
Lee critiques Labour Party leadership and explains his social credit views, contrasting them with the Social Credit Party. He offers a personal perspective on his political and economic beliefs.
Key economic ideas:
Social credit theory: Government issues money directly for public works and welfare, bypassing private banks to reduce national debt.
A note on historical sources, like Wikipedia, etc. Most online accounts of John A Lee, including those covering ‘The Lee Affair’, focus on party conflict and his expulsion, rather than his economic reforms. Key facts are often left out, such as his social credit experiments, the NZ five-pound note, and the one million pound government-issued currency for public projects. For Kiwis seeking to understand how Lee aimed to reduce national debt, prioritise public welfare and bypass reliance on foreign lenders, reading his original works like Simple on a Soapbox is essential. Otherwise, the full picture of his monetary vision remains deliberately hidden and buried…
For any modern finance minister, like Nicola Willis, deep technical expertise isn’t strictly required. What is required is an understanding of the dynamics, the script and the rules to follow. There is little room for deviation. Someone attempting to think outside the conventional framework risks losing both their political role and future career opportunities, even in the private sector.
Willis may grasp the mechanics of debt and bonds as well as anyone, but her perspective is shaped by privilege and position. She moves like a captain on a massive ship, navigating the major financial currents of London, New York and global markets. Yet, like ships on fixed trade routes, she rarely sees the world off the beaten path or the lives of ordinary citizens who fund the system through their labour.
In stark contrast, John A Lee was born into poverty, raised without privilege and experienced the harsh realities of life for the working class. His monetary reforms and social credit experiments were rooted in that lived experience, giving him insight into how money and debt truly affect every day New Zealanders. An insight that someone like Willis, however competent, is unlikely to fully grasp.
