Monday, May 29, 2023

Roger Partridge: Budget gets worse with age

The eight days since last Thursday have not been kind to Minister of Finance Grant Robertson’s budget. Initial assessments flattered to deceive. Sure, it was a big-spending budget – but it could have been worse.

But eventually, Stockholm syndrome wears off. Then dismay sets in. The size of the transgressions becomes more transparent. The ‘kindness’ proves to have been cynical.

Robertson’s first objective should have been controlling inflation. Rising prices hurt businesses, workers, and consumers.

Even in non-inflationary times, the Public Finance Act requires the Minister of Finance to exercise prudent fiscal management. A budgeted increase in non-Covid spending of 12.6% – nearly double the rate of inflation – with the economy at over full employment was hardly prudent.

On Wednesday, the Reserve Bank duly raised interest rates by 25 basis points. Governor Adrian Orr claimed the Bank has raised the OCR high enough to contain inflation. This is a heroic assumption. It required Orr to ignore the budget’s surge in spending and take projected future declines in expenditure as a percentage of GDP at face value. Yet Robertson has persistently failed to keep spending within past forecasts.

But, even if those projections prove accurate, Treasury concluded that the budget will keep interest rates “higher for longer.” A cap on future rate rises is cold comfort for mortgage holders already hurting from high interest rates.

Then we come to the dollops of poorly directed spending. Universal free prescriptions and free public transport for children have superficial appeal. But for a Minister of Finance who has talked so much about wellbeing, they are little more than a cynical election bribe.

Had Robertson been motivated by wellbeing, his spending would have been more directly targeted. Free prescriptions for the residents of Remuera and Karori hardly address need.

The middle-class welfare was bad enough. But the budget’s huge helping of corporate welfare subsidising the video-gaming industry was unfathomable. Kiwi consumers don’t care whether their video games are made here or in Australia.

But perhaps the budget’s biggest fault is what it didn’t do. It failed to address the root cause of the housing affordability crisis. It offered nothing to ease the acute shortages of healthcare professionals. Nor the crime wave sweeping the country.

And while it included generous new allowances for schools, the spending was misdirected. Despite their appeal to politicians, the evidence suggests smaller classroom sizes are not what is needed to fix the education system’s woes.

All-in-all, the whiff from Robertson’s sixth budget just gets stronger. He’ll be hoping, come October, that voters don’t sniff him out.

Roger Partridge is chairman and a co-founder of The New Zealand Initiative and is a senior member of its research team. He led law firm Bell Gully as executive chairman from 2007 to 2014. This article was first published HERE.


TJS said...

Spending is like eating. It is an addiction and a penchant for young men.

Deborah said...

I understand he reduced the budgets for police and the health service, if true, its quite unbelievable considering the state of both.
They clearly went for headlines, and sadly it will work for the female vote they captured last election ( as a female i can say that!). Also, what about the millions for poi waving? If that was National the media would be trashing them for weeks.

Anonymous said...

If the wrath of the masses is able to dislodge this government in October there will not be much taxpayer-funded poi waving for the next 50 years.
National do not have the answers to our worst woes but if they can stop the waka incursion of our democracatic processes that will be a start. With trepidation I wait for October as I'm terrified that Labour may be returned although diminished. What they have done with their majority should see them adrift in the wilderness for a long long time. National has a big job to do but are they up for it?
Stuart Smith for PM.

Originz said...

Stuart Smith?!?!?! He is my local MP, and I correspond with him often. It is a thankless task, but someone has to try to get him to see some sense. While Hipkins is characterised as a primary school boy out of his depth, Smith is simply an intermediate school boy in the same situation. We would be out of the frying pan into the fire with him. No one in National is inspirational. I used to think Simon O’Connor had a future, but when he was cowed by Luxon over a Facebook post, I lost any hope I had in him.