Friday 10 May 2024

Robertson's Seventh Budget?

Dan Bunskill reports on Finance Minister Nicola Willis's speech this week:

Willis said it wouldn’t be a “big-spending” Budget, knowing that Crown finances could get worse before they get better, but she wouldn’t “overreact” to worsening forecasts either.

It will not be “an austerity Budget, of the sort suggested by a few commentators seemingly enthusiastic to see the mistakes of history repeated”.

“Our Government knows how devastating it would be if we were to give up on overdue tax relief, to drastically cut-back on investment and public services, and to downsize our ambitions for growing New Zealand’s economy”.

"Drastically cut-back". 


National hopes to get core spending down to 30% of GDP, sometime. 

Ardern's 2019 Wellbeing Budget was forecast to cost 28.8% of GDP over the medium term. Willis wants to avoid "drastically cutting-back" to a level higher than Ardern had set. 

Pretty easy to read those lines in Robertson's voice really, maybe other than the bit about overdue tax relief. 

As I'd put it in The Post earlier this week:

Tax revenue and government spending are both substantially higher than they were before 2020’s Covid lockdown – whether measured as dollars collected and spent, or as a fraction of overall economic activity.

Core tax revenue rose from just under 28% of GDP in 2019 to just over 29% of GDP forecast for 2024. But core government spending increased from 28% of GDP to 33.4% of GDP over the same period. The difference between the two is a problem.

Government spending increased by over six percentage points of GDP in 2020. Spending to deal with the worst parts of lockdowns and border closures mattered. But wage subsidies are now gone. Borders are open. And core government spending, as a proportion of GDP, is forecast to be only about a percentage point of GDP below its peak.

If you think the continued increase is because government has had to put more money toward healthcare, in the wake of Covid, and toward education, for dealing with the lingering effects of Covid through the school system, check the figures.

In 2019, education and health together were about $30 billion of a $100 billion government budget – 30% of the total. If education and health were pulling spending upward, they would now be a larger fraction of the larger budget. But Budget 2023 had education and health as about $44 billion of a $176 billion government budget – about 25%. Health and education are not what has driven the overall increase.

Compare growth in health and education spending with growth in other areas.

Spending at the Ministry for the Environment increased from $708 million to just under $3.5 billion over the same period. Transport’s budget also more than doubled – from just under $5 billion to just over $10 billion.

The Ministry for Social Development went from $26 billion in 2019 to $41 billion in 2020 – understandable when the wage subsidy was in place and lockdowns blocked jobseeking. But MSD’s 2023 budget was $43 billion, despite relatively low unemployment rates.

I'd there concluded:

Basic maths lays out the options. Spend less, take more in taxes, or a bit of both. Anything else reeks of denial. But surely a May budget set by a National-led coalition Government ought to balk at setting a core spending path entrenching government spending as a larger share of the economy than Finance Minister Robertson promised in 2019.

What I'm really hoping for in Budget 2024 signaled strong consolidation for Budget 2025. Set each budget line for 2025 as the same fraction of GDP as it was in Budget 2019 - as a baseline starting point. Ditch programmes that don't make sense to maintain stronger funding for ones they want to keep. 

I'll be at the lockup. The last lock-up was really rather fun. At least for me. Maybe less so for a few others. 

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