Researchers from Treasury have looked at the possibility of a government spending cap by introducing a rolling three year target for core Crown expenses.
In a working paper released today, Tracy Mears, Gary Blick, Tim Hampton and John Janssen of Treasury said such a cap could be effective, but also complex.
The government decided this year not to implement a spending cap, although it did limit new expenditure to NZ$1.1 billion in its annual operating allowance.
Your views? Should government introduce a cap to limit its spending?
Here are the concluding remarks from the paper:
New Zealand’s existing fiscal framework – centred on the principles embedded in the Public Finance Act – contributed to New Zealand entering the economic recession of 2008-2009 with historically and internationally low levels of public debt. However, the focus on debt did not prevent Government spending increasing as a percent of GDP. This paper considered whether a spending cap would be a useful addition to the fiscal tool kit.
To be effective, a spending cap would need to have fitted into the existing Fiscal Management Approach. The proposal considered in this paper entailed a rolling threeyear nominal target for core Crown expenses, as set by the government. It was designed to have a range of exclusions, such as unemployment benefit expense – due to their cyclical nature. In addition, there would have been a margin to accommodate unexpected changes in forecast expenses.
The benefits of the proposed spending cap are that it would have reinforced the commitment to the existing limit on new initiatives under the Operating Allowance and placed an indicative limit on changes to forecast expenses that go through the Baseline Update process. However, the complexity of the proposal would have led to significant communication challenges, potentially with some confusion about how it would operate alongside the existing system.
The review of the Fiscal Management Approach, signalled in Budget 2010, could assess whether more of the changes to forecast expenses should be “counted” against the Operating Allowance. Ideally, future arrangements will also allow the fiscal pressures associated with the rising profile of some categories of demand-driven expenses (e.g. New Zealand Superannuation, some categories of welfare benefits) to be more clearly identified and compared at the same time as decisions are being made around new spending initiatives. A simple and transparent approach will ensure that the underlying trade-offs around current policy settings, and their long-term fiscal effects, are visible. This will contribute to New Zealand having a sustainable fiscal position and being well-placed to respond to long-term fiscal challenges.
22 Comments
This is a good video on Europe
The end of democracy, or its rebirth? http://wealthadviseruk.blogspot.com/2010/11/end-if-democracy-or-its-reb…Yes, I agree - but we have to identify what is socially essential, and work out how to maintain (that's different from 'fund') those services.
I suspect health, police, education are in the essential list. A world without them would be pretty bleak. The knee-jerk way is to pay less to those involved, but that leads to graft and corruption, and a total knock-on effect to a system already off-balance - it may be that we can't do the change until the whole thing implodes, after which folks 'values' hopefully change a bit. Voluntary work comes to mind - which is what I do most of nowadays, anticipating the payment system would fail - but those who levered themselves on the basis of BAU won't like that...
Not sure whether. at this late stage in the game, an orderly unwinding is possible.
Still, no harm in trying, eh?
Most sensible ppl/countries would have a rainy day fund....so in the good times you build up a reserve and in the bad draw it down that way you get paid interest and are not beholden to anyone....However instead NZ had labour who spent it on social engineering and National who [wants to] give tax cuts....
Its sensible IMHO being where we are right now to go over-drawn, the impact of not doing so would be more severe......it hasnt done Ireland any good....now has it.
regards
Yes – cutting back until our full unemployment rate goes up another 15% up to 25% and our economy comes to a still stand and more serious problems occur.
By the way: Can anybody tell where the jobs are for the X generation - within NZ ?
Government spending needs to be wiser - orientated and in correlation with the world situation – as I explained many times...
Thinking back, National campaigned and won the last election mainly on the platform of lower taxes.... in other words, they were selling themselves fiscally as not being the miser that Michael Cullen was. And true to their campaign promise we got that tax cut.
Effectively, like a business saying we're gonna charge our customers less for our goods but at the same time we'll increase our expenditure/borrowing and change nothing about the way we do things.
English is still talking about "external" shocks being potentially responsible for a worsening economic situation in NZ. It's an absolute joke - he's in charge and if he sees writing on the wall - it's his job to act.
From his recent speech it's as if he sees his job as being the guy who cranks the handle of the warning siren - not the one who gets into the truck and puts out the fire.
Also change, but um no change....
Miser, you should maybe look up the defination....miser someone who keeps the money....neither Cullen or BE are misers.......
Cullen certianly was no miser,
1) He spent more and more on social engineering and funded it by not moving the tax brackets, the result was the middle class paid more and more tax, but then so did the better off working class. All this does is over tax the better skilled workers and give it to the poorer skilled....this is perverse. There are charts here (somewhere) showing how Govn expenditure accelerated under Labour.
2) Cullen bought the 2005 election with WFF bribes (which considering the alternative was the ACT stooge Brash we have to be thankful for). So yes he did do some good things, trying to save for the BB bulge and Kiwisaver were and are good acts IMHO....WFF is a disaster it sends lots of wrong signals and is going to undo his good points IMHO over the next generation.
BE is stuck between a rock and a hard place, NZ's debt is private debt much of which was taken out during the HC/Cullen time in power to fund the housing boom or company aquistions most of which dont seem to have been un-productive.....and HC and Cullen did what to contain it? diddly....if 7 odd years ago they had done what National has now done recently ie take away the neg tax advantages plus put in decent financial regulation to give Mom and pops confidence to invest we would be in a far better state, and started to save for the rough times instead of blowing it, we would be in a far better state today they did little....
Warning siren, I would think they tend to be fairly quiet due to the self-fullfilling phrophecy effect...he does seem to be commenting, but I wonder if it isnt a butt covering exercise because behind the scenes they see the bubbles bursting as almsot certain and soom (2011)...given every bubble has always burst its a Q of when and not if..........from what I can see there is a snow ball effect heading towards a line of dominoes....ie ever worse economic and financial data that is going topple the first domino we just dont know which one and then others also fall....and there are I suspect to many dominos to get around...
regards
This is the chart you are looking for;
http://www.interest.co.nz/Charts/Government/Crown%20financial%20results
I was referring to the lengthy period of surplus during the Cullen years as FM - and the public/media labelling of him as a miser for not providing those tax cuts (or bracket moves, same thing) in a time of surplus.
WFF was "targetted" tax relief - targetted at more disposable income in households with children, given the very poor stats (in comparison to OECD countries) associated with the number of children in NZ living in households operating below the poverty line.
Point is - as a generalisation - the NZ tax/welfare system is structured in a manner which favours child poverty above poverty of the elderly (and one can only assume that is because the elderly vote).
The cap is pretty easy IMO - don't spend more than you earn! If the govt makes a deficit one year, than they should cut some spending to make up for it next year. Their aim should always be neutral. This way you don't indebt furture generations for the sake of the current one (apart from pensions which is something else that needs to be looked at).
Currently the govt just overspends with the hope that future growth will pay for it!
No....they save in the good years and have a rainy day fund.....basic households economics...
Pensions, no "apart"....treat everything the same....the Cullen fund would have got us over the worst of that....since it wont be there the current generation should see their retirement age rise to 67.....Not taht this will make the difference I suspect they think it will...ie if you are abeneficiery you come off benefit and go onto a pension....older ppl seem to have more difficiulty getting work so they will be claimming dole for 2 more years instead of a pension....ie its just moving deck chairs.
There will be little future growth, there is no more cheap energy.....the result will be as in the UK, the middle class will find their effective net pay declining as they have to pay more tax and get less free/subsidised public services.....this means less consumer spending, (and could double whammy as they save harder to cover themselves) which means more un-skilled / semi-skilled "retail assistants" on the dole....the [very] hard issue is creating real work for the semi or un-skilled is indeed a difficult one.
regards
I agree 100% . Every sensible human being knows you cannot live beyond your means without dire long term consequences . Government needs to reign in ( cut ) spending money it does not have .
The alternative is to increase tax which is not appealing at all because productive people either stop working or emigrate to lower tax jurisdictions like Australia
I just love ppl who mouth off "sensible" statements, its like "you know its common sense" and then tack on a statement that is your point of view. So here you go trying to undermine/destroy any rational counter-argument.....
The simple answer is we are starting from a bad position which if we as voters had been competant on we wouldnt be in. You actually fail to take a long term view....
There are two choices, we in the west seem to have spent all of our money and more (ie debt) in the good times and have miserably failed to save for the bad times which are now here....I see that as a failure of basic household financial management....Asia on the other hand has built up large reserves by saving in the good times...the result is they dont need to borrow and then dont pay interest or suffer a loss of sovreinty....as the bond holders demand actions of them their voters dont want/accept.
Oz almost certianly isnt "lower tax" or maybe I should say better "net in your pocket", and this is a global problem....the perceived lower tax havens us productive ppl can move to will dis-appear....
Productive ppl wont stop working, I certainly wont. If they have that mind set I dont believe they would have become productive in the first place...the alternative is misery on the dole queue....and that really is misery (been there wont go back easily) especially if you have a productive mindset it feels horrid,......if you are lazy or useless slob yes then sure living in poverty might seem OK....
regards
Asia also doesn't have a welfare system and that is a very powerful incentive for people to 'save'.
I was recently talking to a Chinese friend who was dispairing of their daughters propensity to use debt i.e. credit cards to fund her lifestyle. My friend sees the 'Westernisation' of China as being detrimental to what she sees as core Chinese family values. My friend is an 'average' Chinese citizen, not wealthy.
I think personally we can thanks the likes of Alan Greenspan and Gordon Brown who by off-putting recessions/bad times gave a generation +1/2 the collective belief that bad times were in the past and no life experience of suffering through one to cement that check/balance in. We also seem to believe that we have to be always positive towards our children and their experiences again cementing in the no failure, impossibly positive "lifestyle" thought process/belief........
I get a bit sick of the "can do" attitude this seems to be "will do" no matter what the cost in other areas....for instance set a challenging dead line (read impossible) as a manager and then expect the staff to pull out all the stops, work extra long hours and seekends and get it done....the manager of course then thinks he/she got it right....so carries on....meanwhile the staff cease to have lives....then they leave....or projects simply fail spectaculary....and of course the manager blames someone else....cant be his/her fault he/she has never had a failure in their lives....
1/2 my [+extended] family and a lot of the influence on it, is chinese......the daughter you mention is fairly un-usual i think from my experience. Many who i see in the younger chinese generation (<25) are still achievers ie go out and work hard to become professionals (doctors, dentists etc) and get pushed/helped by their parents......also is the daughter in NZ or in China? suspect the former....I see some caucasian youngsters who do the same thing.
regards
"I get a bit sick of the "can do" attitude..."
Where? In NZ? Not a chance! This is the "No can do" nation, where people will line up around the block in heavy rain to tell you why your idea is stupid and can never work.
NZ is the "Shit-scared of anything new" nation, and the "Jump on the bandwagon once others have done the legwork, but leave it until it's too late and everyone else is leaping off again" nation.
Hi Steven. The daughter lives with her parents in China. She is around 17yrs old. Her mother wasn't referring to a lack of work ethic, rather what she sees as the 'I want it & want it now' attitude of her daughter and some of her peers. I agree that some NZ youngsters are the same but it has been part of western life for a while now, but for my friend who migrated from a rural area to a provincial city, she finds the emphasis on material things and less regard to saving a little worrying and a huge change from the values she grew up with.
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