New Zealand PM Jacinda Ardern delivers a first budget that busts the hype


By Grant Duncan

Updated

May 21, 2018 10:25:53

New Zealand’s election last September ended nine years of centre-right National-led government, putting the balance of power into the hands of the NZ First party, which negotiated a coalition with Labour, supported with confidence and supply from the Green Party.

Labour’s Jacinda Ardern became Prime Minister amid intense global media attention.

Ms Ardern and her Finance Minister, Grant Robertson, have made much ado of new spending in health, education and housing. Ms Ardern has shouldered ministerial responsibility for reducing child poverty.

Her Government’s first budget, delivered last week by Mr Robertson, allows us now to look critically at the substance behind the appearances.

‘NZ Inc’ is highly leveraged

With unemployment expected to drop below 4.5 per cent, the economy growing at about 3 per cent, and tax revenue higher than forecast, Mr Robertson had options.

Like his predecessor, Michael Cullen (Labour’s finance minister from 2000 to 2008), he chose a conservative fiscal policy.

Central government spending will remain at roughly 28 per cent of GDP. The forecast is for surpluses and reducing core Crown debt from 21 to 20 per cent of GDP over the next three years. As private household debt is estimated at 168 per cent of disposable income, due to rising property prices, “NZ Inc” is highly leveraged.

It’s considered prudent for the state to save on behalf of the country in case of a “rainy day” like another GFC or serious earthquake.

Labour governments have a reputation for being spendthrifts, but the facts tell us otherwise. All the same, centre-left voters expect Labour to relieve financial stresses in public services and boost support for the community’s worst-off members.

Health gets just enough ‘to stand still’

Immediately on coming into office, the new Government cancelled National’s planned tax cuts, boosted family tax credits instead, and initiated a program of “free” tertiary education for new entrants.

There was much more to be done, however.

New Zealand has a serious housing shortage and social deprivation. Property prices are beyond the means of many young couples.

Much infrastructure, especially transport and hospitals, is inadequate or run down. State-sector employees such as teachers and midwives are genuinely overworked and underpaid. Prisons are overcrowded.

Mental health services are unable to meet real needs. Top of the budget headlines was an additional $3.2 billion for public health operating expenditure over four years.

Once population growth, ageing and inflation are taken into account, economists from the Council of Trade Unions estimate the 20 District Health Boards will get, “very close to what they required to stand still”.

In compulsory education, there is little prospect of real income rises for teachers.

In tertiary education, Labour’s electoral promise of “no fees” will cost $2.5 billion over five years. But universities and polytechnics get no new operational funding, so there’s no investment in the quality of tuition. New Zealand’s universities will continue to lag behind Australia’s.

There is funding to build 6,000 much-needed public housing units over four years. And the Government will build and sell thousands of “affordable” houses for first-home buyers.

The sceptics question whether the country has the human and fixed capital necessary to pull this off. But the chronic undersupply must be addressed.

Poorest children helped ‘only marginally’

The big winners are the portfolios of two NZ First cabinet ministers, Winston Peters and Shane Jones. Mr Peters is Deputy Prime Minister and Foreign Minister. Foreign Affairs gets a boost of nearly $NZ1 billion over four years, mainly for development assistance in the Pacific.

Mr Jones, the Regional Development Minister, gets $NZ1 billion per annum in a “provincial growth fund” for make-work schemes such as planting forests.

Had National, not Labour, formed a government with NZ First, there would have been a comparable price to pay. So the Opposition is in a weak position from which to attack this.

The Greens got their pay day too, although it cost a fraction of NZ First’s. There is more funding for bio-diversity and climate-change initiatives.

Commentators on the left are asking why this Government chooses not to borrow and invest more, as the cost of finance is low and there is much more to be done.

The Child Poverty Action Group estimates Labour’s families package will help children from the poorest homes “only marginally”.

From the right, Business NZ gave muted praise to R&D tax incentives and regional investment. But employers generally dislike Labour-led governments, worrying they are pro-union and they raise taxes.

Grant Robertson has very few cheerleaders for his first budget. But it’s only the first.

Next year’s will apply a living-standards framework, including non-economic, wellbeing factors such as natural capital.

And the one after that precedes the election. So, we may have to wait two more years before we see a lolly scramble.

Associate professor Grant Duncan teaches political studies at Massey University Albany, Auckland. His forthcoming book is called The Problem of Political Trust (Routledge).

Topics:

budget,

government-and-politics,

world-politics,

new-zealand

First posted

May 21, 2018 10:21:13



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