The Post: Throwback Budget aiming for ‘holy grail’ target

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Tribute bands never have quite the same force as the originals they copy; and so it is with governments. Thursday’s Budget continued National’s loose homage to the state-shrinking days of the 1990s, sounding many of the same notes – spending cuts, trickle-down economics, and the diminution of collective insurance – though only as a vague, watery echo.

Conservatives will say there were no budget cuts overall: the state’s core spending is projected to rise from $142b in this year to $150b in the next. But government spending has to rise just to keep pace with inflation, public sector wage rises and increased demands for medical treatment.

The truer measure is state spending as a proportion of GDP, which tells us how much of our collective revenue we are devoting – through government – to solving our collective problems. On this measure, government spending will shrink from 33% in 2024 to 30.9% in 2029, close to the conservatives’ “holy grail” of 30% of GDP. This leaves less money, relatively speaking, for tackling collective challenges like poverty and climate change; our collective support for each other will diminish.

It has never been explained why this 30% figure is so magical. And indeed it is hard to justify.

As my columns have repeatedly pointed out, the governments that deliver the best public services in the world – services envied by New Zealanders who have been lucky enough to experience them overseas – often spend 35-40% of GDP. If we had their capital gains, inheritance and wealth taxes, we would have another $20-30b to spend on repairing our frayed public services.

Finance Minister Nicola Willis likes to point out, not unreasonably, that the government’s books should balance. When it comes to current spending – hospital visits, teachers’ salaries, conservation programmes – revenue should match expenses. Borrowing should be reserved for long-lasting capital expenses – hospital buildings, rail lines, classrooms – from which future generations benefit and for which they should pick up part of the tab.

Too often, the New Zealand government has borrowed to fund current spending. But that is a problem best solved not by cutting spending, but by increasing revenue. And given that, according to the Inland Revenue, the richest New Zealanders pay half the tax rate of we ordinary folk, there is plenty of room for the latter.

Willis’ cuts, of course, are nowhere near as savage as those carried out by Ruth Richardson and the other destructive figures of the 1990s, who slashed spending from 40% to 30%, cut benefits by up to one-fifth, and doubled poverty overnight. Nonetheless there are family resemblances.

The Budget’s signature initiative, a $1.7b tax rebate for firms buying new machinery, is claimed to lift wages by 1.5% over 20 years. Not only is this a small sum, it relies – rather improbably – on benevolent employers deciding to share revenue gains with their workers.

We have seen this movie before, in the era when trickle-down economics was the dominant mantra, and it doesn’t end pleasantly: between 1984 and 1999, incomes for the poorest half of the country fell.

There is, of course, a more direct way of raising wages – especially in female-dominated industries where, as the courts have established, workers are being underpaid purely because they are women. But the government has, notoriously, turned its back on pay equity, banking over $12b in “savings” by gutting those women’s pay claims and spending the money on military helicopters instead.

Elsewhere, the changes to Kiwisaver – halving the government’s annual contribution to $260, and lifting each individual’s default contribution to 4% of their salary – send an unmistakable message that, when it comes to saving for your retirement, you are increasingly on your own. Too bad for people who – through ill health, discrimination, abusive childhoods or whatever other reason – struggle to save. And if employers effectively avoid their required 4% contribution by taking it out of people’s pay, things look even bleaker.

It’s not that there is nothing good in the Budget. Large increases to learning support and disability services are very welcome. But, owing to the insistence on shrinking the state overall, these boosts are all paid for with other cuts – to Kiwisaver, to child payments for families earning over $79,000, and to other schooling schemes.

The government claims these cuts are all to under-performing programmes. But, as we have seen with last week’s scathing Auditor-General report on Oranga Tamariki’s cuts, they are just as likely to involve indefensible, scattergun attacks on successful NGOs.

Machinery-related tax breaks aside, the Budget provides little to help build a new economy. The target of investing 2% of GDP on research and development has been shelved, and the Budget apparently contained no new spending on the science and innovation that is crucial to restoring our economic fortunes.

Such moves, however, would require hands-on government. And that – as we all know – is not the 1990s vibe.