By Andrew Hoggard, President Federated Farmers of NZ
It’s easy to spend other people’s money and this Government is proving to be expert at it.
Unfortunately, it has not been so expert at spending it wisely or caring much about value for money.
The Auditor-General reported at the end of March that a $290 million fund to assist tourism businesses hit by Covid in 2020 proceeded with scant regard for conventional Government processes, and the Ministers involved in allocating the money didn’t keep proper records.
Three tourism businesses were allocated funding before the system had even been set up.
In a sample of 126 successful applicants, 27% got more funding than they had requested. Approval criteria for Māori businesses was dropped altogether.
This is just one particularly egregious example but it’s not an isolated event. There was the $158 million of Marsden Grants awarded over two years for academic research of what I would generously describe as being of dubious value, such as to examine how New Zealanders are using dating apps. And then there’s grants from the Ministry of Culture & Heritage’s $60 million Covid-19 Innovation Fund, like funding an online children’s game about an albatross.
And then there are the millions spent on government advertising campaigns, many of which are more noted for being cringeworthy, like Waka Kotahi’s ads promoting lower speed limits and Energy Efficiency and Conservation Authority’s ‘Gen Less’ ads, or blatant propaganda, like the infamous ads promoting Three Waters reforms, or more subtle propaganda like some of its Covid-19 advertising.
And now we have hugely expensive centralising reforms, such as to health and drinking water as well as to the RMA, which will grow the power of the state, result in a lot more desk-bound policy advisors and bureaucrats, and a ballooning wage and contactor bill. The core public sector has grown 33 percent in five years to more than 61,000 people and it seems it will only get even bigger under the Government’s reforms.
Although clearly there was poorly targeted and poorly controlled spending during the pandemic, Federated Farmers believes the Government did the right thing overall with its strong fiscal response in 2020. But this was on the basis that it would be a short-lived temporary boost and a quick return to normal standards of fiscal responsibility.
The economy bounced back but the stimulus – both fiscal and monetary – has been proven to be too big and went on for too long. 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.
$52 billion. Let’s reflect on that number … It’s more than $10,000 for every New Zealander. It’s more than our annual exports from the primary sector. It’s a staggering amount of money for a country of our size.
In percentage terms annual core Crown spending is 68 percent higher than it was five years ago. Is the value we are getting from this spending 68 percent higher? Or even at all higher?
If we had lots more doctors, nurses, teachers, and police that would be fantastic and if we had much better health, education, and crime outcomes that would be even better.
Core Crown tax revenue is higher too, to the tune of $27 billion, in part because of fiscal drag pulling more people into higher tax brackets, but even that growth in revenue hasn’t been able to keep pace with the growth in spending.
So, we have a forecast operating deficit of $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 fiscal forecasts have improved. But there are plenty of economic risks. We have an economy which is overheating and seems likely to overheat even when growth is slow like it did in the 1970s and 1980s. Inflation has surged to nearly 6 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 and tougher economic medicine will be needed sooner or later.
The Government must do its bit to dampen down the inflationary fires by being responsible in managing its finances, ensuring its spending provides good value for money, and that its wider policies promote a productive, competitive economy that helps businesses prosper and to employ people.
This includes value for money infrastructure investment, especially on transport, energy, and telecommunications, and investment in skills and training. All these can boost New Zealand’s productivity. But does an Auckland tram line with a potential price tag of $29 billion provide good value for money? A couple of aircraft carriers would probably be a better spend, let alone all the schools, hospitals, and roads that could be funded instead – or savings in interest costs from having less debt and lower taxes if the money isn’t spent at all.
Inflation and the cost of living is a big concern but what we don’t need is well intentioned but naively harmful ideas like subsidies, price freezes or rent controls, or messing with GST. All of these would cause much bigger problems and would fail to address root causes, just as the same sort of ideas did under Rob Muldoon.
Instead, the upcoming Budget needs to restore fiscal responsibility and credibility and make it easier for the Reserve Bank to normalise monetary policy in an orderly way. The Government should dust off its 2017 Budget Responsibility Rules (see below).
These should all be uncontroversial yet the Government abandoned them during the pandemic and it hasn’t reinstated them even as the need to do so has become increasingly obvious.
So rather than an orgy of new spending, my plea to Grant Robertson is go back to basics and rediscover your fiscal responsibility. And maybe trust Kiwis to spend their own money instead of taxing them more and more to feed the hungry beast of government or tossing it on business and middle class welfare.
Return to responsibility
These are the Budget Responsibility Rules the government set itself in 2017. We need to get back to them.
- Debt: The Government will stabilise net core Crown debt as a percentage of GDP by the mid-2020s and then reduce it as conditions permit (subject to any significant shocks).
- Operating balance: The Government will run an operating balance consistent with meeting the long-term debt objective.
- Expenses: The Government will ensure operating expenses support a responsible and proportionate role for the Government in maintaining a productive, sustainable, and inclusive economy, consistent with the debt and operating balance objectives.
- Revenue: The Government will ensure a progressive taxation system that is fair, balanced and promotes the long-term sustainability and productivity of the economy, consistent with the debt and operating balance objectives.
- Net worth: The Government will use the Crown’s net worth to maintain a productive, sustainable, and inclusive economy, consistent with the debt and operating balance objectives.