Promising more, spending less

The health system was the big winner from the recent Budget announcement which saw a much needed increase in capital funding. This was one area that had been starved by the previous government’s insistence to pay down debt and as a result was left drastically underfunded. It’s symptomatic of the infrastructure crisis we face across the country, where public transport, schools, and housing services are teetering on the brink. Even so, Treasury’s 2018 Investment Statement estimated that DHBs required $14 billion of spending over the next 10 years; the $850 million allocated to capital spending in this budget is a start, but it falls well short of requirements.

Despite all the hype surrounding the new government, they have signed up to the same rules as National did that require core government expenditure to be below 30 per cent of GDP, and to reduce government debt to 20 per cent of GDP by 2022.  Sure they have managed to reallocate some spending, and canning the proposed tax cuts as well as the National’s irrigation subsidies allowed more money to be allocated to much-needed services. But the total pie is not growing anywhere as fast as it needs to. The increasing load of healthcare and Super, the infrastructure deficit and the requirement of light rail, hospitals, and prisons that all still need to be built – adds up to a heavy load on the taxpayer. Finally consider that the biggest winner on Budget day, healthcare, was funded merely enough to keep the lights on. When our best is only just good enough it is clear we have a problem.

This lack of investment in infrastructure is not simply the fault of the last 9 years. National may have managed to turn our rivers into toilets, and stoked the flames of the mess that is our housing market, but the foundations of these woes are the collective 30 years of political mismanagement that has produced the first generation predicted to be worse off than their parents. It’s also true that we cannot expect a government in the first year of their first term to instantly steady the ship. What we should expect however is a one that openly campaigned on these issues to take significant steps to resolve them.

As much as their ardent supporters would claim otherwise, it is blatantly obvious that this is not the case. Nothing in their 100 day plan or budget announcement points to any real, structural change from the way things have been done in the past. In opposition, Labour labelled the previous government’s underspending as ‘grotesque’, yet over the next four fiscal years, spending is projected to be a smaller share of GDP than in the last four years. The hypocrisy is astounding. How can we expect to address this growing list of issues when we are, in relative terms, planning on spending less?

This fiscal austerity is somehow justified by claims the government is saving for a rainy day, but the state of our homelessness, our hospitals, our schools, should surely be reason enough to pull out the cheque book. The main focus of the budget was to ‘rebuild services’ yet our education system barely received enough to cover the cost of new enrolments. Borrowing to spend our way out of crisis seems like a no brainer, and in an ideal world it would be.  However, now Labour is in power it can no longer escape the reality that it is as constrained fiscally as its predecessors; The burden of private household debt as a result of rampant housing speculation of decades now has seen our foreign debt level rise to unprecedented levels. That matters, because foreign creditors and their rating agencies look at the total burden of a society and assess its ability to pay. If the private sector has taken up the largesse, then that leaves less room for the government sector to indulge. Borrowing the amount required to fufil the needs listed above would quickly see a credit downgrade which would have a significant impact on the ability for our economy to grow.

Until private housing debt is addressed there is little we can do but save and reallocate in the same manner as caretaker governments of the last 30 years.  As real GDP growth slows and our costs grow, even this becomes a dangerous game. Under our current spending patterns we are predicted to open up a year-on-year budget deficit of 4% of GDP by 2045 and we would certainly need to get our finances in order well before then. There is little to suggest we will miraculously lift our productivity levels (boosting income and paying down debt), and there is surely a limit to how long we can rely on immigration to give the economy momentum.  So while increasing government borrowing seems like one of the few logical options left, such a view is simplistic – it ignores the economic and social consequences. We have to reduce our private debt to a level that leaves the government with some headroom for public debt to expand. This though is something there is clearly no political will for – as the shackles put on the scope of the Tax Working Group’s brief attests.

This is not a partisan argument. We have written at length about some of the positive steps this government has taken such as the introduction of a climate commission, their action to clean up our rivers, the best start payment and others.  These moves show the progressive capabilities they have. But, by turning its back on correcting the tax incentive to purchase owner occupied housing,this government has endorsed the same economic regime previous governments have. It has not "set a course for New Zealand’s future" but instead remains entrenched serving the interests of the comfortable property-owning cohort of voters who put them there. 

The same problems would exist whether our government was red or blue. National and Labour are the two parties with the most similar policy and their voters are predominantly cut from the same cloth. Fiddling with policy that effects the largest voting cohort is a sure way to lose them, just ask Andrew Little. The Government will do what it can with the wiggle room allowed, but don’t expect it to be anything outside the remit granted by those who voted them into power.

Ironically, it’s really the fault of the apathetic youth and increasing ranks of long term renters who for whatever reasons, either refuse to vote or stand up against the Establishment same-same parties. Until these renters get sick of paying for their landlords’ Super and hip replacements, expect nothing to change. Establishment parties are simply catering to the needs of their voter base.

Andrew Courtney 

Andrewc@top.org.nz


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