Govt faces challenge in fixing Budget
Briefing a fitting tribute to Labour’s woeful management
The Treasury’s Briefing to the Incoming Minister of Finance, released a week ago, is a fitting tribute to the previous Government’s woeful management of the country’s books.
It is worth dwelling on some of the numbers contained in it. Total Crown expenditure grew from 36 to 41 per cent of our whole economy over the past six years, elbowing aside the private sector and Kiwi families.
Expenditure in the year to June 2023 alone was 83 per cent higher than the same year six years ago.
These are phenomenal increases, and they should be Grant Robertson’s political epitaph. Aside from the early Covid spending, never has so much been spent, yet so little achieved.
We now have the fastest-growing debt pile of all advanced countries except for the whacky spendthrifts of the British Government, which is not one to benchmark ourselves against.
While our net debt level is not as large as many others’, it’s rapidly heading that way. As a percentage of our economy it is now at a level not seen since the mid-1990s.
As a small, isolated economy prone to natural disasters, we need to keep our debt lower than most others, not the same or higher. Michael Cullen may have proudly “spent the lot” in his final budget but Grant Robertson went one better and depleted the piggy bank as well.
Despite all this extra spending, everywhere you look the performance of the public sector has gone backwards, and there are clues in the document as to why.
As the Treasury coyly puts it, we need to move from “a focus on defining performance purely in terms of expenditure and outputs to one that incorporates quality of delivery and results”. The voters were well ahead of them last October.
All this is to illustrate the mountains Nicola Willis has to climb as she prepares her first Budget over the next couple of months, starting with some preliminary announcements next week. And it doesn’t end with Labour’s legacy.
A quick glance across all the nonTreasury BIMs reveals a chorus of “cost pressures” and an urgent “need” for boosts in spending, not cuts. Some of those pressures will be real, and some of them will be borne out of a public sector which has become used to cashing cheques for whatever it thinks it needs rather than doing the hard job of getting better value for money from the money it’s already spending. The Cabinet’s job will be to work out what pressures are real and fund them while making up for those with a higher level of savings elsewhere, plus a major change in culture across the public sector.
And all that’s before you get to infrastructure. After a wasted six years of much talk but little building, the country has an understandable appetite for building stuff and the Government has a long list of things it has committed to getting started on.
Unfortunately, the twin ravages of runaway inflation and natural disaster remediation risk are making a mockery of these good intentions, and that’s another huge pressure on the new Government’s Budget.
Clearly, to achieve the turnaround the country needs, it won’t be enough to make the odd nip here and tuck there — there will need to be “reprioritisations” at a scale not seen for a long time. An across-the-board percentage cut in spending alone is not going to do the job. It is too blunt an instrument. To achieve the level of savings required, the Government is going to have to stop doing some things, and it is encouraging that it has at least started the task.
Stopping the blighted Auckland light rail project, the pipe-dream that was Lake Onslow, the duplicate health bureaucracy that is the Ma¯ori Health Authority, government funding of “cultural reports” in the courts, and the obsession with trafficimpeding street furniture like raised pedestrian crossings won’t solve the Budget problem on their own but they are a beginning. None of these things were greatly missed before they arrived, and they won’t be missed again.
The challenge for the Government is to surgically dig out many more of them without cutting into the core services the public values. The only good news is that with such a massive increase in spending over such a short time there will be plenty to be found.
There is a challenge here to the other side of politics as well. If you kick up a fuss about every single thing that is stopped by the new Government, you look like you are still part of the spending problem and haven’t learned anything. Or even worse, you are petulantly refusing to accept the election result. One of the reasons Labour got spanked last October was because the public thought that Government wasn’t being careful enough with their hardearned tax dollars while they themselves were doing it tough.
Wailing about every change since just underlines to voters why it was the right decision to throw them out.
There are whole chunks of the core public sector which are duplicative and fully able to be surgically removed without damaging the capability of the sector, and probably in fact enhancing it. Thanks to the last Government we now have three bureaucracies in charge of health, not one, three also in charge of the polytechnic sector instead of the previous one, and something like six or seven agencies with their oar in infrastructure provision. All over the public sector there are tales of little fiefdoms arguing over who is on top.
Those who are worried about changes in the bureaucracy need to think about what’s important in a world of limited resources. For example, a Ma¯ori health bureaucracy in Wellington versus greater funding for Ma¯ori health services, screening programmes that benefit Ma¯ori and more training places for rural doctors? Raised pedestrian crossings or fixing up and building capacity in our roading network? We are all of necessity moved from a period where money was no object to one which is about choices and we need to focus on what achieves results.
Repairing the Government’s Budget will not be easy. As we’ve seen in recent weeks, there is a constituency for almost any item of government spending who are prepared to preach dire consequences if it is removed.
Ministers will need to keep their wits about them in determining what needs to be protected versus the things we can’t justify. And, at all times, they will need to be thinking about that overall spending curve, and how it has to be bent back into a downwards direction.