Scoop Election 08: edited by Gordon Campbell

Gordon Campbell on yesterday’s ‘let them eat crumbs’ Budget

May 16th, 2014

Hate to hurt Bill English’s feelings, but yesterday’s Budget looked like a document the Labour Party might have written – and no, that’s not meant as a compliment. Basically, English will be keeping it steady on the economic fundamentals, while sweetening them with a few social spending gestures aimed at blunting the appeal of already signalled Opposition policy in these areas. They’re tactical blocks thrown in election year for vote-catching purposes, and they’re not being pursued on the basis of what’s affordable – more spending certainly is – or in response to social need.

For example, English announced that the government in 2015 will begin phasing in a two step increase in Paid Parental Leave (PPL) from the current 14 weeks to an eventual 18 weeks. The Opposition has been pressing for 26 weeks. The government’s paler facsimile (a) takes the political edge off the alternative, with the aim of (b) making the Opposition’s more generous (and eminently affordable) version look like extravagance. Would a gradual transition to 18 weeks of PPL by April 1, 2016 in any way future-proof New Zealand’s PPL entitlements? No way. We will continue to drag our feet. Eighteen weeks for PPL was the OECD average five years ago. So in two years time, we will reach parity with what will have been the OECD average seven years beforehand. And moreover:

In New Zealand’s policy, paid maternity leave always equates with paid parental leave. However, this is not the case in all OECD countries. This means that it is likely that the average for total PPL (maternity + paternity + family) across the OECD is even higher than 18 weeks. This makes New Zealand’s policy appear even less generous by comparison.

I’ve mentioned the PPL example at length because it is pretty typical of the crumbs-from-the-table generosity of this Budget. The 2014/15 Budget offers:

1. Free doctor’s visits and prescriptions for children under 13. Interestingly, this is budgeted to cost $90 million over four years from mid 2015 onwards and will benefit an estimated 400,000 primary school children. To which one can only say: if it costs only $22.5 million a year, why has it taken so long to deliver? Compare this to the $535.5 million being set aside in this Budget to “strengthen” the Defence Force. Compare it to the $1.1 billion annual cost (in revenue loss) of the 2010 tax cuts.

No one wishes to decry making medical care for children more affordable. Yet in this case, the “free doctors visits for children under 13” masks the fact that Health spending overall moves from $14.4 billion to $14.7 billion – and according to Labour finance spokesperson David Parker, this means that when inflation and demographic changes are factored in, the Budget is overseeing a 2.3% reduction in Health spending at a time when the population is getting older, and their health needs are increasing. Plainly, the “surplus” is coming at a considerable cost to taxpayers.

2. There will be an increase in the parental tax credit (PTC) from its current maximum of $150 a week to $220 a week, plus a gradual four week extension of the period (to 10 weeks as from next April, and 12 weeks a year later.) for which it is paid, after the birth of a child. Couples with a joint gross income of $99,847 will henceforth not qualify for the PTC at all. Note: beneficiaries – already denied access to Working For Families – do not qualify for this tax credit, although they pay tax.

While better than nothing, the new PTC policy continues to distinguish invidiously between the working poor and beneficiary poor, and thus rewards/punishes babies according to the work status of the family into which they have been lucky/unlucky enough to have been born. This is what the government spins as being a “family friendly” Budget.

3. The government will produce a surplus of $372 million next year, and Treasury is forecasting larger surpluses from then onwards, topping out at $3.5 billion in 2018, if current trends are sustained. This sounds good – and it is being praised to the skies – but very little attention is being paid to where much of the surplus has come from. That’s unfortunate, given that a cool $1 billion of social and infrastructural spending in yesterday’s Budget – from the extra $200 million in Health spending to the $67 million for a new hospital on the West Coast, to the next $172 million instalment of Kiwirail’s Turnaround Plan to the $40 million irrigation scheme to the housing plans in Hobsonville have all come out of the proceeds from asset sales via the ironically titled Future Investment Fund. For a government that prides itself on running its affairs like a household and balancing its books accordingly, this is exactly like selling the family car and furniture to pay the rent. The government has sold down what were revenue-generating assets and ploughed the money into things we like to have, but which do not generate income. You can label this a lot of things, but ‘sound economic management’ is not one of them.

4. While beneficiaries get either ignored or demonised in yesterday’s Budget, the big ticket item in welfare spending – National Super – remains politically radioactive for this government. Not only does the Budget leave the age of entitlement untouched; but, in line with its head-in-the-sand refusal to plan for an ageing population, National is not going to resume paying into the Superannuation Fund for another six years.

5. Talking about what’s on the horizon….Tax cuts – or “tax reductions” as English calls them – are now back on the table. On RNZ’s Checkpoint last night, English indicated this would be a “next term” consideration and the funds involved could either be spent on public services or in tax reductions. Note: only $500 million seems to be being set aside for this exercise, which is a figure dwarfed by the $1.1 billion a year in ongoing lost revenues from the 2010 tax cuts (estimate by the Parliamentary Library) and is roughly comparable to the $535 million in Defence spending cited in this Budget.

6. There will be cuts of $480 million in ACC levies next year, spearheaded by major reductions in motor vehicle levies– which could fall by as much as $130 a year from mid 2015. Is taxation theft? If so, someone should tell Jamie Whyte and the Act Party about this case of highway robbery, and belated repentance. The concocted crisis in ACC finances and the over-hiking of levies by the incoming government in 2008 has now been reversed to the tune of $1 billion in recent ACC levy reductions. Again, it’s hard to feel grateful for the payback.

7. Among the rest: there will be reductions in duties and tariffs on buildings components, and the cost of building an average new home could fall by $3,500 as a consequence. While welcome, this comprises only a 1% saving in the cost of building a new home. Nice, but hardly a deal maker.

Time and again, the Budget busies itself in this fashion with political tweaks that will render some issues less problematic for National on the campaign trail, while leaving the government in apparent denial about the nature and extent of socio-economic needs. To this government there is no compelling need, as mentioned, to do anything about superannuation, despite the ageing population and its related health costs. Similarly, the Budget offers nothing substantial to address income inequality and wealth concentration, and the social malaise that comes with that territory.

There is also no vision – or evidence of planning –for long term, sustainable growth, which continues to rely on ad hoc, transient strokes of good fortune: high commodity prices, the Christchurch rebuild, and consumption spending on cheap imports via a high dollar that’s torturing our exporters. In this climate, the tax relief offered for start up companies on their r & d spend is (typically) a step in the right direction – while also merely a baby step in addressing our glaring shortfalls in private sector r&d spending.

What is infuriating is that New Zealand could afford to do far better by the people who pay their taxes, and who are being drip-fed only morsels in return. Core Crown expenses have fallen from 34.4% of GDP at the height of the GFC in 2008/09 to a forecast 30.3% in this financial year and are headed below 30%. This is spectacularly low by global standards – in the US the comparable figure is 103% and it is a blood chilling 243% in Japan. No one would want to replicate those figures here: but we have the reverse problem, where fiscal anorexia is seen to be a good thing, and something that voters are expected to reward at the ballot box.

Meanwhile, out in the real world, real needs are going unrecognised and unmet. For an example of short sighted miserliness….within the Budget press releases, Tertiary Education Minister Steven Joyce revealed that for at least another two years, the earnings threshold at which students begin to repay their student loans will not be lifted as they formerly used to be, in line with inflation. “This will marginally increase the total repayments made by student borrowers,” Joyce concedes, but hi-ho silver lining: this hardline approach will allegedly reduce “both repayment times for borrowers, and future lending costs for the Crown.” That last bit being all that matters, right?

Yet get this: in New Zealand, the earnings threshold for student loan repayment and interest charges is only $NZ19,084, which amounts to $384 gross a week. Thereafter, interest payments of 12% cut in on those loans. Compare this with Australia where this chart reveals that a comparable obligation falls upon Australian students only after they have begun to earn $A50,000 a year. And just in case anyone thinks is a residual sign of Gillard/Rudd extravagance, the comparable figure in the UK is 21,000 pounds. No wonder that so many of our graduates are planning their escape from New Zealand. Out of these and similarly myopic policies, a faux surplus has been generated. Flood victims in Christchurch for instance will receive no relief in this Budget from the asset sales proceeds being disbursed to CERA from the Future Investment Fund; For now at least, the cost of flood amelioration is being pushed back onto local government – perhaps in order to increase the pressure on the Christchurch City Council to sell some of its assets.

The fact that this year’s Budget is about titivation of the New Zealand economy – rather than transformation – has wider repercussions. At the Budget lockup, I asked BERL economist Dr Ganesh Nana whether he had spotted any glaring sins of omission that might have usefully enhanced productivity, longer term. “I don’t know about sins of omission,” Nana replied. “But I’ve never been of the opinion that the government’s deficit or surplus was the number one priority in the New Zealand economy. The sin of omission here is that we continue to focus on the government’s books, but ignore the nation’s books. At the same time as we’ve got the government going into surplus, we’ve got the nation going into deficit, even more.” Commodity prices evidently, do not raise everyone’s boat.

The worry, Nana continues, “is that we seem to be near the peak of the boom times, and yet we are still facing an external deficit that’s growing. We’re facing an export sector that – to be honest – is looking pretty miserable by Treasury’s own forecasts. It has been this way for a while. Scratch beneath the surface and what you find is that we’ve got an export receipts boom that is based on dairy and logs, with the rest of the export sector struggling.”

While the government continues to be fixated on the risks of inflation, are there any deflationary signs in the economy deserving of equal policy attention? Nana smiles wryly. “The tradeables sector has been in deflation for quite a while – and that’s how we’ve been hitting our inflation target, because the tradeable prices are declining, while the non-tradeable inflation is over 4%. So yes, there are deflationary pressures in certain sectors of the New Zealand economy. In particular, in the tradeables sector. And if you look through some of the retail trade data, some retail outlets are under price pressures downwards…”

To what extent are consumption levels being kept aloft by the high dollar, and by the spending it makes possible on imports? “Well yeah, it’s a high dollar/cheap imports argument. I wouldn’t say that’s all of the explanation, but that’s a fair bit of it. Going into the future, that’s the depressing thing about the Treasury forecasts. They’re largely about consumer-led/consumption spending growth.”

To be fair, although the Key government seems to have no clue -– either in this Budget, or beyond it – about how to foster a wide-ranging export-led path of growth, the Opposition lays it on a bit too thick when it attributes much of the current economic recovery to the Christchurch rebuild. Given that its other complaint is that the rebuild has been slow to start/hasn’t started yet, it can’t have it both ways. Rather than having a big spike, Nana says, the impact of the Christchurch rebuild is proving to be smaller, but more long lasting, than was initially expected.

For most voters this year, their main concerns will be over job security and wages. At best, these factors seem likely to flatline and may well decline. In his Budget speech, English pointed to the jobs being created by the government, and the rise in the average wage – now at $54,700 and forecast to rise to $62,300 by 2018. The figures are misleading and that’s mainly because – thanks to the extremes at both ends of the income spectrum – the average wage figure conceals as much as it reveals. The median wage would give a truer picture of the income spread but, according to Treasury, that figure isn’t collected. However, judging by the charts in the small blue “Key Facts” Budget handout, 69% of income tax payers in New Zealand are earning less than $50,000 a year. Two thirds of us are earning below $40,000.

Treasury wage forecasts are not particularly rosy, either. Treasury routinely over-estimates low wage increases and under-estimates high wage increases, according to CTU economist Bill Rosenberg. In the year to March 2014, wage increases were tipped to reach 3% but came in at 2.5%, Rosenberg says, and 46% of New Zealand workers received no wage increase at all. [That 2.5% average currently puts wage increases ahead of an inflation rate that is being depressed, as Nana says, by the deflationary pressures in the tradeables sector. Not a healthy situation, however much English may applaud the fact that wage increases of late have been running ahead of inflation.] “They’re forecasting unemployment to still be above 5% in 2016, and the government is bringing in employment laws that will make it much harder to get wage increases…”

In this age of the French economist Thomas Piketty and his best selling book Capital in the 21st Century, is there anything in the Budget that addresses the problems of income inequality and wealth concentration that Piketty has identified? “On the contrary,” Rosenberg concludes, “one of his analyses is about labour’s share of income. And in fact, the Treasury forecasts show that there’s been a falling labour share, of overall income.”

So there it is. A Budget that does contains a few desirable bits of positive social spending – just sufficient, perhaps to blur the outlines of a programme of government spending that will see services either flat-line, or contract. Unemployment will still be above 5% in 2016, mortgage costs are on the rise, wages are set to lose ground against inflationary pressures that are largely being generated by the non-tradeable sector, while our tradeable sector sinks further into deflationary territory. Overall, the current economic recovery is almost entirely reliant on dairy, logs, consumption on cheap imports and the rebuild in Christchurch.

Looking ahead, the public’s reward for the past six years of belt tightening is the prospect that these gains will soon be hosed away on tax cuts (during the next term) that will disproportionately reward the people least in need. It is a scenario where income inequality, wealth concentration and the related social problems are bound to rise. For this performance, National is receiving a round of applause for its tactical brilliance, and its skill in triangulating Labour’s social policy programme, for a relative pittance.

National seems to have perfected the art of lowering the ceiling of expectations, and then painting a few pretty pictures on it to divert the paying customers. It’s nice to have free doctor’s visits for kids under 13. It would be even nicer to have a government that knew where it was going, and had a sustainable plan for getting there.

ENDS

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    1. 13 Responses to “Gordon Campbell on yesterday’s ‘let them eat crumbs’ Budget”

    2. By Patrick on May 16, 2014 | Reply

      *slow clap*

      This and the commentary on house prices by Rob Salmond are the pieces that really speak to me. Yes, National are great communicators, and have done well to paint the appropriate election year picture to trumpet “not changing horses mid-stream”, but where is the ‘vision thing’, and why is nobody bothered to ask for it?

      If the answer to all our problems was getting the government books into surplus, where’s the ‘then what’ that will reflect the so-far erronous “rock star” title?

      Also, citing avergae wages really does my head in – a clearer picture would be given to the electorate if ‘mean’ average and inequality impacts were better understood and communicated.

      Big missing pieces for the opposition to latch onto – unemployment, housing, wage growth and inequality. But above all of that – better communication and management.

    3. By Jason on May 16, 2014 | Reply

      For the wage media, not sure what is meant by “that figure is not collected”. It’s not reported sure(tho IIRC it used to be) but it’s pretty easy to determine.

      https://www.ird.govt.nz/aboutir/external-stats/revenue-refunds/wage-salary-dist-for-ind/

      The page is flakey for me at the mo’; hopefully because they’re updating the 2013 figures, but for 2012 the median wage was between $33,001 and $34,000. Figure back to 2003 are available in the linked xls.

      Thanks to Idiot Savant for pointing this series out to me a while ago.

    4. By Gordon Campbell on May 16, 2014 | Reply

      @Jason
      Thanks very much, Jason, The ” not collected” was what I was told by Treasury at the lockup and I should have checked further. Also a correction : the debt figures I cite for the US and for Japan are gross national debt as a ratio of GDP, and clearly that’s not the same beast as the NZ Crown debt ratio I cited. While Australia has very low gross national debt to GDP ratio – the last figure I saw a few weeks ago was 28.8 %, – New Zealand gross national debt is higher. But it doesn’t alter my argument that there is room – on the Crown debt and inflation fronts – for more spending on public services. Yesterday’s attempt by English to create a ceiling of $1.5 billion in new spending per annum should be resisted. We do not have an inflation risk in the tradeables sector and unless we do invest in policies to grow that part of the economy, we’re toast.

    5. By Malcolm on May 16, 2014 | Reply

      The New Zealand Income Survey and the Labour Cost Index has data about median wages.

      http://www.stats.govt.nz/browse_for_stats/income-and-work/Income/nz-income-survey-info-releases.aspx

      http://www.stats.govt.nz/browse_for_stats/economic_indicators/prices_indexes/LabourCostIndexSalaryandWageRates_HOTPMar14qtr.aspx

    6. By Malcolm on May 16, 2014 | Reply

      The New Zealand Income Survey and the Labour Cost Index has data about the median wage.

      http://www.stats.govt.nz/browse_for_stats/income-and-work/Income/nz-income-survey-info-releases.aspx

      http://www.stats.govt.nz/browse_for_stats/economic_indicators/prices_indexes/labour-cost-index-salary-and-wage-rates-info-releases.aspx

      This stands out from the March 2014 quarter LCI report:

      “Annual median increase lowest in over 13 years
      Of all salary and ordinary time wage rates in the LCI sample, 54 percent rose in the year to the
      March 2014 quarter. This compares with 54 percent in the year to the December 2013
      quarter and 56 percent in the year to the March 2013 quarter.
      Of the 54 percent that increased in the year to the March 2014 quarter, there was:
       a median (middle) annual increase of 2.3 percent (the lowest since the June 2000
      quarter)
       a mean annual increase of 3.1 percent.”

    7. By donna on May 16, 2014 | Reply

      Thank you, Gordon, for not mindlessly repeating the ‘family-friendly budget’ spin.

      It is disappointing that the budget effectively abandons the most vulnerable (except for money to snoop on them); has nothing to help people into their own homes (although the Minister of Social Development seems pleased it will help people to rent. What an idiot); further runs down support available through Working for Families; and, as far as I can make out, has sneaky cuts (in real terms) to those profligates in Special Education.

      Ganesh Nana is, I believe, correct – we have no inflation outside the non-tradeable sector. That hasn’t stopped our glorious leaders proclaiming an economic boom on the back of a housing bubble. In other words, we are in exactly the same place we were in 2007. A sustainable recovery? I think not.

    8. By Draco T Bastard on May 16, 2014 | Reply

      “but, in line with its head-in-the-sand refusal to plan for an ageing population”

      But National are planning for the ageing population – it’s just a rather stupid plan. Their plan is to massively increase immigration so that we have the needed young people to support the over-entitled old people.

    9. By Ken Martin on May 16, 2014 | Reply

      Wait until you are old Draco. You will not then consider yourself over entitled. Your comment smacks of ageism.

    10. By Gordon Campbell on May 18, 2014 | Reply

      In making a one sentence aside about the cost of the 2010 costs, I cited – using a second hand source – a $1.1 billion estimate of the ongoing costs from the 2010 tax cuts. Having thought more about it, I’m not sure that’s a reliable figure ; so I’ll withdraw it until I can do some more legwork and feel more confident about the number. This doesn’t affect any of the arguments in the above column.

    11. By Maggie Lawson on May 23, 2014 | Reply

      “in New Zealand, the earnings threshold for student loan repayment and interest charges is only $NZ19,084, which amounts to $384 gross a week.”

      So that means once you’re working over 26 hours a week at minimum wage they’ll wanting their money back. Nice. Im finding it harder and harder to find the reasoning behind encouraging my kids to go to University.

    12. By Judy on May 23, 2014 | Reply

      It’s wonderful to hear diatribes against ‘average’ anything You only have to alter the highest income and kick people out of STABLE lower wage work and the average wage goes up. That is dishonest but does not show up its dishonesty under ‘average’.

      Even Rural News 20/5/14 talks about the ‘evil’ of averages and suggests they stop talking about averages if they want to improve efficiency (not to mention improving truth). “For example, a farmer who says he’s getting 8000kgDM/ha, but in reality some paddocks are producing as little as 2000kg and others 12,000kg.”
      My example is one ‘CEO’ earning millions spends half his day golfing and the other half checking on his SOE share portfolio while his worker ants are slaving on minimum wage. Averaged out it sounds like the ‘ceo’ has actually done some work… Yet, when the pay is dished out he gets hundreds of thousands and the worker ants get ‘crumbs’.

    13. By Judy on May 23, 2014 | Reply

      Maggie, University is always worth going to, but since Minister Joyce took/will take an axe to the Education Council, universities will no longer have the holistic approach for students, summed up “(From Wikipedia, the free encyclopedia -
      Holistic education is a philosophy of education based on the premise that each person finds identity, meaning, and purpose in life through connections to the community, to the natural world, and to humanitarian values such as compassion and peace. Holistic education aims to call forth from people an intrinsic reverence for life and a passionate love of learning.”) Actually not a bad quote for a website Universities don’t like to quote from (heh).
      The Council numbers will be cut down to govt stooges and admin – no student input, no tutor input.

      Higher learning was once paid for by ‘blue collar workers’ in return for egalitarian lifestyles, like freeish health and higher education for all (no student fees). Egalitarianism, also, is no more. Our country has become a sad casefile in itself, which will be studied one day in a Government-sanctioned heavily subsidised University that once again values its students because the government views them as part of a community of interest that ‘blue collar workers’ can benefit from. Instead we have The Precariat as the goal, based purely on the greed of the few.

    14. By Susan St John on May 27, 2014 | Reply

      Gordon
      I was a bit concerened to read this. It conflates gpovernment spending with debt–may be a sentence left out?

      What is infuriating is that New Zealand could afford to do far better by the people who pay their taxes, and who are being drip-fed only morsels in return. Core Crown expenses have fallen from 34.4% of GDP at the height of the GFC in 2008/09 to a forecast 30.3% in this financial year and are headed below 30%. This is spectacularly low by global standards – in the US the comparable figure is 103% and it is a blood chilling 243% in Japan. No one would want to replicate those figures here: but we have the reverse problem, where fiscal anorexia is seen to be a good thing, and something that voters are expected to reward at the ballot box.

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