The Spinoff: A budget for machines, not midwives

Read the original article in The Spinoff

Machines, not midwives: that, according to Thursday’s budget, is what matters to the New Zealand economy.

The centrepiece of the budget, handed down with the usual pomp and ceremony by finance minister Nicola Willis, was a $1.7bn tax break by which businesses investing in “productive assets” – machinery, tools, equipment and the like – can deduct 20% of the value of that investment from their Inland Revenue bill.

The broad consensus is that this move makes sense on its own terms, encouraging investment in the capital stock that can help boost productivity. It is, though, somewhat underwhelming: even measured over 20 years, it adds just 1% to GDP and – even more speculatively – 1.5% to wages.

More telling still was the contrast with what’s not being funded. Most obviously, and notoriously, that’s pay equity. The government has banked $12.8bn by gutting the claims currently being taken by workers in female-dominated industries who, the courts have found, are being underpaid purely because they are women. Those workers include Plunket nurses, midwives, and the care and support staff who help look after elderly and vulnerable people in their own homes.

Willis insisted money had been put aside for a much-reduced version of the pay equity process. She refused, though, to say how much, insisting that disclosure would undermine the Crown’s negotiating position – even though, in this instance, the total sum could presumably have been disclosed without making it clear to any industry how much was set aside for their specific claim.

We are free to speculate, then, that the government may have put aside just tens of millions or hundreds of millions of dollars, rather than $12.8bn, to address the historic underpayment of female workers. That, in turn, makes clear the government’s priorities. The coalition parties like big, grunty bits of kit – the sort of equipment that, despite changes in the workforce, is probably still largely owned and deployed by men – but they are not particularly interested in paying women what they are worth. 

Indeed, the annual $1.7bn cost of the business tax break is easily covered by the roughly $3bn annual cut to pay equity. It’s pretty clear, then, what matters. Machines, yes. Midwives? No.

Robbing Peter to pay Paul

Along similar lines, the rest of the budget consists of initiatives that help certain groups but only at the expense of others. It’s a familiar story of robbing Peter to pay Paul – or, given the above facts, robbing Pamela to pay Paul.

Sixteen and seventeen-year-olds, for instance, will be eligible for the annual KiwiSaver government contribution. But that contribution has been halved from $520 to $260. And even while the government is encouraging young people to save and be independent, it is telling them that, if they are aged 18 or 19, they won’t get Jobseeker Support if their parents are in a position to support them. Does this make any kind of coherent sense? Not obviously.

Elsewhere, support for children with learning difficulties gets a dramatic, long-overdue and much-welcome boost. But this is funded in part by taking, over a four-year period, hundreds of millions of dollars away from Kāhui Ako, a scheme that was producing at least modest benefits by helping teachers work more closely together, spread successes and diminish the isolation experienced by struggling schools.

Some households, meanwhile, will get around $7 a week more because the income threshold at which they start to lose their Working for Families payments is being raised from about $43,000 to $45,000. Once they earn over that threshold, though, the rate at which those payments are clawed back will increase. The state giveth with one hand, and taketh away with another. Meanwhile families earning just $79,000 will start to lose their entitlement to the Best Start payment provided during their newborn’s first year.

There are countless more cuts – adding up to over $2bn – in the budget, many of them seemingly petty: millions of dollars taken from schemes for Māori teachers, energy conservation programmes, RNZ and others. It will be interesting to see whether the government pays the price for this, in the form of story after story about the damage done by hundreds of lost programmes, or whether that is drowned out by the good vibes from the business tax break and other measures.

Ardern’s child poverty promises abandoned

The budget’s lack of basic substance is most badly exposed by its plan to tackle – or rather, not tackle – child poverty. Back in 2018, Jacinda Ardern set ambitious targets for cutting hardship, pledging to reduce from 16% to 5% the proportion of families living on less than half the typical income.

Her government got about one-third of the way before progress stalled post-pandemic. Now, National’s target is literally to do nothing: to maintain the current 12% of children living in poverty for ever and ever, amen. The Treasury’s official projection is that this target will be achieved, because – from a social point of view – this is essentially what the budget is about: treading water.

The government’s opponents will, nonetheless, struggle to lend a telling blow on this budget, because it is not really about slash-and-burn. But the longer-term trend is clear.

Despite the growing calls on the state – to tackle poverty, to address the effects of climate change, and to care for an ageing population – Willis is determined to shrink government spending as a proportion of GDP from 33% to 31%. A diminishing share of our annual income will be spent on solving collective problems.

Yes, the New Zealand government is currently spending more than it earns. But, given that the wealthiest New Zealanders pay half the tax rate of we average folk, the best way to close that gap is to increase tax rates at the upper end. Instead, we have a government that – lest we forget – is still handing out $2.9bn in tax cuts to landlords.

There we have it, then: a budget that prioritises machines over midwives, funds new schemes only by cutting other successful ones, and generally treads water. New Zealand is a country with big structural problems. It is not clear that this budget solves any of them.