Federated Farmers has called on the government to do its bit to dampen down inflationary fires by being responsible about managing its finances and ensuring spending provides bang for buck.
Speaking to Parliament’s Finance and Expenditure Select Committee earlier this month, Feds President Andrew Hoggard and Group Manager National Policy Nick Clark said in percentage terms annual core Crown spending is 68 percent higher that it was five years ago.
“Is the value we are getting from this spending 68 percent higher? Or even at all higher?,” Andrew asked.
If the result was more doctors, nurses, teachers, and police few would quibble, even better if the result was significantly improved health, education, and crime outcomes.
“But what we seem instead to have is an enthusiasm for big-bang centralising reforms which will grow the power of the state, a lot more desk-bound policy advisors and bureaucrats, and a ballooning wage and contactor bill,” Andrew said.
The core public sector has grown 29 percent in five years to around 60,000 people.
Federated Farmers was presenting its submission on the Budget Policy Statement (BPS) 2021, which sets out the government’s priorities for the 2022 Budget. Finance Minister Grant Robertson has yet to announce when he will deliver that Budget.
Feds has a long history of commenting on the BPSs and Budgets of successive governments and Andrew told the Select Committee the Federation supported the government’s 2020 fiscal stimulus as COVID-19 hit, on the basis it would be a short-lived temporary boost.
“But stimulus – both fiscal and monetary – was too big and went on for too long,” Andrew said.
Core Crown operating spending for the current 2021/22 year is forecast to be $128 billion, $20 billion more than last year, and nearly $52 billion more than five years ago.
That $52 billion increase is “a staggering amount of money for a country of our size”. It’s more than $10,000 for every New Zealander, and more than the value of our annual exports from the primary sector.
Core Crown tax revenue is higher too, to the tune of $27 billion, but it hasn’t been able to keep pace with growth in spending. The result is that the operating deficit is forecast to be $21 billion, and net core Crown debt has gone from $59 billion five years ago to a forecast $136 billion for 2021/22.
“Yes, it could have been a lot worse, yes some of higher spending like the wage subsidy will be temporary, and yes the forecasts looking ahead are encouraging,” Andrew said.
“But there are plenty of economic risks.”
Even without lockdowns, Omicron will result in disruptions to economic activity.
High international commodity prices for agricultural products have boosted exports, farmgate incomes, and rural, regional, and national economies, but the global economy remains fragile. In particular, there are risks in China, by far our biggest trading partner, of an economic slowdown which could see demand and export prices fall.
Unemployment is very low but the flipside is acute labour and skill shortages which are causing severe headaches for businesses, including farms, to survive let alone grow. The longer the borders remain closed and immigration kept to a trickle the worse this will get.
The economy is overheating and inflation is nearly six percent, the highest in more than 30 years.
“Yes, international supply chain issues and energy prices are largely out of our control, but cost pressures put on businesses are more widespread and resulting inflation is proving to be much broader. The risk is they’ll become imbedded,” Andrew said.
The Federation argues that spending should be focused on things that will promote a productive, competitive economy that help businesses prosper and employ people – that means infrastructure, transport, better telecommunications and investment in skills and training.
“Regulation needs to be sensible, practical, and affordable. We remain concerned about the poor quality of some recent regulation, especially around freshwater and climate change, and we are worried about some of what is set to come, such as RMA reform, three waters reform and the income social insurance scheme.
“If the Government is serious about taking pressure off farmers or indeed small businesses generally, there are two things they could do that would help most:
- quickly enable immigration to resume to address massive labour shortages on-farm.
- revisit or just slow down the pace of the dizzying reforms that are causing such bewilderment, stress, and dismay out there.”