Ideas@TheCentre
The long sleepy drift into federation
New Zealand has long been imbued with a soft socialism combined with a ‘she’ll be right’ attitude to life. The problem is its attitude to growth and productivity – relatively few Kiwis worry about the ever-widening wage gap with Australia.
Yesterday’s budget was similar to the Australian budget in terms of trimming family payments, HECS, Kiwisaver, the public sector, and growth in spending. The moves were in the right direction but so modest and reliant on bullish projections that it is bound to look like fiscal tinkering over time.
Minister of Finance Bill English revealed a record $16.7 billion deficit for 2010–11 (8.5% operating deficit). So far this year the government has been borrowing $380 million per week. The annual figure is expected to drop to $10 billion next year.
Budget projections indicate the books will be back in surplus by 2014–15, and net debt will be paid off by 2024 (sooner than projected last year). The government plans to do this despite leaving the big three spenders – health, education and welfare – largely unchanged or even increasing their allocation. Health continues to be a bottomless hole for cash. It has no effective price signals and savings are being redirected, but the sector is getting an extra $1.2 billion in new funding.
If per capita GDP has not grown since 2004, and growth in government and government spending has crowded out private sector activity, how can minor changes at the margins help?
This is the great contradiction at the heart of the budget. The government argues that the growth in state expenditure on low quality ‘nice to haves’ has driven the structural economic and fiscal imbalances. Yet the plan is to continue this practice, albeit in a slightly truncated fashion.
Granted, the Christchurch earthquakes added to the deficit burden and wiped out about 8% from the GDP (twice that of Japan). The Canterbury Earthquake Recovery Fund and bond scheme are welcome, but earthquake aside, the underlying structural deficit went unaddressed.
There is nothing to indicate that living standards in New Zealand will reach Australia’s any time soon. Yes, the budget points in the right direction, but it has a real whiff of ‘she’ll be right’ about it.
Luke Malpass is a Policy Analyst with the Centre’s New Zealand Policy Unit.
