Recently, the Leader of the Opportunity Party was reported to have said she didn't mind if core Crown debt increased to 50 per cent, as long as it was for infrastructure.

Furthermore, there are innovative approaches to achieving infrastructure without borrowing that could reshape our financial landscape.

Yes, that's fine, but I suspect she doesn't know about MMT, Modern Monetary Theory, and I hope I'm wrong.

MMT and the Case for Direct Financing of Public Infrastructure

The idea sounds radical at first. Why should a government that issues its own currency go cap in hand to financial markets? Modern Monetary Theory, or MMT, argues that a monetary sovereign can finance public spending through direct money creation, while keeping interest rates at or near zero, paving the way for infrastructure without borrowing.

All this talk about "getting back to surplus" needs to be questioned. A surplus for government is a debt for the private sector. It's much better to run a deficit, as long as it's for infrastructure and there's no inflation.

The Borrowing Myth

MMT starts from a simple claim:

A currency-issuing government isn't financially constrained the way a household is. It can always create the money needed to settle obligations in its own currency.

Two conclusions follow

• Government spending doesn't need to wait for taxes or bond sales.
• Taxes and bonds aren't "funding sources" in the usual sense. They're tools for managing inflation, supporting savings, and shaping interest rates.

In this view, the familiar language of "borrowing" obscures what's really happening: the Government issues government bonds and pays regular interest to the private lender.

Or sometimes the Reserve Bank buys Government bonds. That's plain barmy, I reckon. If one branch of government, the RBNZ, issues money and uses it to buy Government bonds from Treasury, why on earth should it pay interest to Treasury? Even a secondary school pupil should understand that's nonsense.

The organisation Positive Money NZ has made submissions to government arguing for Direct Monetary Financing. Basically, the RBNZ gives money to the Treasury. That's all that's necessary. The Reserve Bank can create money, and no interest is involved.

Why Zero Interest Matters

MMT also argues that if the state doesn't need to attract private lenders, there's no good reason for public debt to carry a positive interest rate. That's why some MMT advocates favour a Permanent Zero Interest Rate Policy, or PZIRP.

Under this approach

• The central bank would hold the policy rate at, or very close to, zero.
• Any bonds issued would serve mainly as liquidity management tools or safe assets.
• Fiscal policy, not interest rate policy, would do the heavy lifting in stabilising the economy.

The point isn't to abolish all public securities, but to strip them of the old assumption that the government must pay to borrow from the market.

Infrastructure Without Inflation?

This is where the argument gets most interesting. MMT advocates say direct financing of infrastructure isn't automatically inflationary, because inflation is caused by real-world bottlenecks, not by the accounting method used to pay for a project.

If there's spare capacity in the economy, unemployed labour, idle machinery, and underused construction firms, then public spending can put those resources to work without pushing prices up. And because infrastructure expands future productive capacity, it can actually ease inflation over time.

That means roads, rail, energy systems, housing and digital networks aren't just expenditure. They're supply-side investments too.

The Real Constraint

MMT doesn't claim governments can spend without limit. Its central warning is that the binding constraint is inflation, not debt ratios or arbitrary deficit targets.

Three questions to ask

• Are there enough real resources to do the work?
• Is the economy already near full capacity?
• Will this spending relieve bottlenecks or make them worse?

If the economy has slack, direct financing may be absorbed by higher output and employment. If it's already tight, then any large new spending, whether funded by taxes, bonds or money creation, can become inflationary.

The MMT Bottom Line

MMT's argument is that direct financing of infrastructure isn't inflationary because of where the money comes from. What matters is whether the spending exceeds the economy's real capacity.

That's why MMT shifts the policy focus away from debt and toward resource use, employment and price pressure. In this view, the true discipline on public spending isn't running out of money. It's running into inflation.