Opinion & Commentary
Time for Politicians to treat our money more carefully
This week’s budget will be the biggest spend-up in New Zealand’s history. Even in the days of Muldoon there was nothing to rival the $54 billion spend-up that Dr Michael Cullen will unveil on Thursday.
Of course there is no such thing as a free lunch, and taxpayers will end up paying the bill. New Zealanders now pay an extra $20 billion a year in tax than they did in 2000, and there are some important reasons why we should be worried by this.
For a start, this amount of tax will inevitably be a handbrake on the economy. It discourages people from working, means less investment and employment, and is pushing up interest rates.
Most importantly though, there are serious question marks over what this spend-up has actually achieved.
Looking at the major social indicators for New Zealand since 2000 paints a depressing picture. Our life expectancy, infant mortality, hospital efficiency and outputs, literacy, violent crime, poverty, inequality and suicide rates have barely changed despite an extra $20 billion of spending. Clearly it’s impossible to ‘buy’ a more caring society, no matter how much money you throw at these problems.
For these reasons, the government needs to start reining in our spend-up. Here are some ideas on how to start.
First off we need a proper review of our current spending to see what it’s actually achieving. Other countries take this much more seriously, like in the UK, where they have an entire government department devoted to measuring the outputs of the public sector.
Prime candidates for review should be policies which encourage ‘churning’, whereby government spending is recycled straight back to the people who paid the tax in the first place. This spending is wasteful, inefficient, and does nothing to help the disadvantaged in society.
A good example is Working for Families, which provides benefits for families earning well over $100,000. The irony is that at the same time many of these families will be also paying the top rate of tax.
The real key to taming our tax monster though is to control future spending, by taking a tougher line on quality control.
Importantly, we need politicians to start focusing more on outcomes (i.e. results) rather than inputs (how much they spend). There is no point boasting about how much we spend on healthcare, for example, if it doesn’t give us more operations and a healthier nation as a result.
To this end, government funding should not be eternal. All new projects and funding injections should have a temporary lifespan, perhaps of three years. If certain goals aren’t achieved then the funding should automatically self-destruct. There is no point throwing good money after bad money.
A side-benefit of this would be to pressurise the responsible bureaucrats to make the programmes work, because their jobs would depend on it.
It would also help if governments declared in advance what they want to achieve. Coalition deals should specify the exact problems they want to solve, explain why government intervention is the best answer, and provide at least a rough costing, rather than just plucking an arbitrary figure out of thin air.
A glaring example of this is the $2 billion a year the government puts aside for ‘unallocated spending’, which basically means programmes they haven’t thought of yet. This money sends all the wrong messages to politicians, because it encourages them to find new ways to spend the extra money, whether the need exists or not.
Even worse, that money is cumulative, so it increases every year. Next year the government will spend an extra $3 billion, which by strange coincidence happens to be an election year.
But perhaps the key to improving the discipline of politicians is for the public to become more discerning and demanding. We need to change the mindset that all government spending is automatically ‘good’, and demand proof of results. This is something that everyone should be able to agree on, no matter where you are on the political spectrum.
By world standards New Zealand is not a rich country anymore, which means we should be extra careful with how we use our hard-earned wealth.
Phil Rennie is a policy analyst with the Centre for Independent Studies. His paper “How to Tame New Zealand’s Tax Monster” is released on Tuesday at www.cis.org.nz
