Budgets not what they used to be
Budget Day used to be the one date in the calendar year when the public got told the state of the nation’s books, and how the next year’s revenues would be generated.
It could mean happy (or bad) news. Labour’s Black Budget of 1958 for instance, has become a notorious milestone in New Zealand’s political history, and ditto for National’s Mother of All Budgets in 1991.
Until quite recently, the media would run stories about this mysterious document being printed in secrecy, and photos of the Finance Minister striding purposefully along the corridors to where its contents would be unveiled.
It’s not done that way any more. For weeks beforehand, the Government dripfeeds the Budget so that maximum public relations mileage can be extracted from each item, and criticism preempted.
Budget Day has been reduced to a showcase for the Finance Minister to brag about how well things are going.
Ironically, the Treasury forecasts on which that optimism is based are now treated with healthy scepticism, and routinely re-adjusted at quarterly and halfyearly intervals.
Last week’s Budget outlook then, was typically upbeat. GDP is growing. Surpluses are being piled up. Jobs are being created.
The average wage is rising – helped aloft by soaring chief executive salaries and the culling of jobs for the middle-class.
Treasury added its own rosy assumptions that immigration will somehow fall from the current 70,000 a year to 12,000 over the next four years, and that dairy prices will bounce back significantly over the same period. This year’s modest $1.6 billion of new investment is set to be dwarfed however, by the $2-$3 billion programme of tax cuts being mooted by the Prime Minister for election year, 2017.
On past performance, tax cuts largely get frittered away on consumer spending, and will heighten the gaps in income inequality that this Budget either acknowledged with token amounts, or not at all.
Unsurprisingly, the worrying news was buried in the fine print.
Reportedly, unemployment will be at 5.6 per cent next year – with 146,000 out of work – and remain above 5 per cent in 2018.
Real wages are forecast to rise by less than 1 per cent this year, and to fall by 0.3 per cent the following year.
By 2020, the share that wages comprise of the nation’s wealth will have fallen by 1.3 per cent, leaving each person an estimated $400 on average worse off than they are currently.
Looking ahead, the claimed need for frugality in social spending will be upended by the tax cut binge planned for election year.
Ultimately, the Budget forecasts themselves confess to being virtually meaningless. The Government is, for instance, about to release a Defence White Paper setting out military replacement costs reliably estimated at $11 billion over the next decade.
Yet the Budget projections entirely omitted those looming costs.
Buried on page 73 in the Budget Economic and Fiscal Update was this deceptively bland paragraph: ‘‘Changes to NZDF operating and/ or capital funding may be made over the forecast period to achieve the Defence White Paper settings.’’
That fact not only renders the Budget forecasts and projections virtually obsolete upon delivery, but – given the massive amounts involved – it also makes talk of tax cuts in 2017 seem irresponsible.