The thinking (and forces) behind yesterday's Budget

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Three things stand out from yesterday’s Budget:

  • Next year’s Budget will be very different
  • English is serious when he says smaller government is better government.
  • We are now getting the bill for the record immigration.

The big surpluses coming down the track, as Bill English says, means the Government has choices in how it can spend money in the years ahead.

And that means it can back Labour into a political corner during election year.

Given that the Prime Minister has already suggested that there could be a $3 billion tax cut in the future and that Mr English has confirmed the 2019 $6.7 billion surplus, the odds are that National can go into the next election promising tax cuts in the 2019 year. (Or maybe even earlier).

The effect of that could be to force Labour to either propose raising taxes or to cut its spending proposals. For a party struggling to gain traction with the electorate, neither is an attractive proposition.

However, National is vulnerable to the kind of charge levelled at it during the Budget debate by Greens co-leader, James Shaw, who said they were the “political equivalent of  Milli Vanilli lip-synching when they should have been leading."

He listed previous Prime Minister, Savage, Fraser, Holyoake, Lange and Clark and their legacies and said that National's only aim had been to stay in power and it had squandered eight budgets and eight opportunities to cerate a meaningful legacy.

Mr Shaw would probably be surprised to find that there are senior Cabinet Ministers who worry that the Government has so far this year failed to demonstrate any really new exciting ideas.

One told POLITIK “We won’t win next year if all we can offer is a restructuring of Child, Youth and Family.”

That restructuring is the tip of an iceberg of public s4ctor reform which is at least as far-reaching and possibly radical as anything that Ruth Richardson or Jenny Shipley dreamed up.

English says one of the reasons that he is able to forecast such large surpluses is that his Social Investment programme is starting to work.

At the same time, he likes to repeat his mantra that “smaller government is better government.”

The social investment programme is driven by data but the Finance Minister has also carefully calculated its political impact.

Again he is seeking to disadvantage Labour by conscripting Labour leaning non-governmental organisations to become partners with the Government in the delivery of the new targeted social welfare programmes.

The Ministry of Social Development has been allocated nearly $346 million to purchase services from non-governmental organisation service providers and Crown entities

But at the same time, the squeeze is still on many budgets right through the Government sector.

The accommodation supplement, for example, is budgeted this year at $1.2 billion, up only $15 million a little over one percent at a time when the Trade Me rental index shows a 7% rise in Auckland rents in the year ended April 30.

However, some parts of Government which have been obviously stressed and which are a part of the Government’s economic success story do better.

Customs gets an 11% increase in its funding for its border clearance staff who play a critical role in the tourism industry. The Comptroller of Customs, Carolyn Tremain, told a Select Committee earlier this year that the service had been losing a large number of border clearance staff staff because of low pay scales.

Other decisions smack of political expediency and possibly even spite.

Maori Party President Naida Glavish was last night hailing the Budget as evidence that there were benefits for Maori from having its own political party “at the table” of New Zealand’s governing coalition. 

She said that all up the party had secured $100 million in funding for proposals it had made --- and the party was a strong force in the decision to increase the excise tax on tobacco from next year.

Speaking in the Budget debate, co-leader Te Ururroa Flavell said: "the Maori Party is here to deliver and Budget 2016 has delivered."

One decision that suggested a hint of political influence was an extra $11 million for Maori TV but yet again no increase for Radio New Zealand.

But if politics defined much of the Budget, the Government has been left with little choice but to increase funding for health and education.

As Treasury notes in the Budget Economic and Fiscal Update, the New Zealand population is growing at its fastest pace in 40 years.

Treasury expects net migration to be peaking around now at 70,000 and to drop away quite rapidly to around 10,000 by 2018.

But the high migration is impacting on housing demand and it also has the effect of lowering per capita GDP --- forecasts out to 2020 show that even though real GDP growth is expected to be 2.8%, per capita growth is expected to reach only 1.3%, below the 1995 -2015 average of 1.8%.

High migration is also a factor in the need for an additional $55 million for new schools in Auckland.

And there is the on going pressure on health and social development spending caused by the ageing baby boomers.

A simple measure of how their demographic bulge impacts the Government is the increase in National Superannuation --- up 5% well ahead of inflation to $12.9 billion.

Meanwhile funding for DHBs is up $568 million although the CTU and Labour have both been saying that at least $500 million would be needed simply to cope with population growth.

So it is a complex budget; one that nips and tucks and scratches away at political itches while at the same time playing to some strategic political goals.

It’s a backroom budget, not one designed for the hustings but putting down the planks for what presumably next year will be a tub-thumper aimed at winning the election.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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