
By Chris Trotter*
The perennial problem with budgets is the political noise that accompanies them. The Government of the day devotes tremendous energy to massaging public expectations. The news media struggles to present itself simultaneously as soothsayer, expert, and advocate. Interest groups attempt to insert themselves into the increasingly cacophonous budget conversation. Meanwhile, the citizens on the receiving end of all this noise grow increasingly frustrated and bewildered. Will this budget be good for them? Will it be fair? Will it work?
Few now appreciate the bland – albeit crucial – purpose of the appropriation bill we call The Budget. Since no government is entitled to go on spending the money it takes from its citizens without renewing, annually, the explicit permission of their parliamentary representatives, the preparation and presentation of the budget constitutes the key task of government. Everything else that a government does depends upon its passage. Failure to muster the parliamentary support required to go on financing the state’s operations must bring a government crashing down.
On the face of it, then, the preparation and presentation of the budget should be a sober and largely technical exercise in basic economic management. How much of what the state is currently obliged to do should it go on doing? And if it enters into new obligations, how should they be funded? Entirely by taxes? By a combination of taxes and borrowing? Or, by axing a number of old obligations to pay for the new ones?
Over and above its responsibility to keep the operations of the state ticking over, a government must also give thought to keeping fat the golden geese that lay its fiscal eggs. The wealthier a nation becomes: the higher the wages of its workers; the bigger the profits of its businesses; the easier it is for a government to meet, and increase, the state’s obligations. Rising prosperity, equitably shared, makes good government easy.
By the same token, what makes good government difficult is an economy in decline. When profits and wages fall, businesses fail, and unemployment rises, then the state’s revenues must also decline – to the point where it can no longer meet the cost of its existing obligations – let alone assume new ones. Rather than renounce at least some of those obligations, most governments opt to borrow the money needed to go on meeting them. Providing the decline is brief, and the economy recovers quickly and strongly, borrowing is a perfectly acceptable policy. But, if the decline is protracted, or, worse still, structural in nature, then borrowing will only make matters worse.
Were parliaments made up of representatives chosen at random for a strictly limited term, it is just possible that the preparation and presentation of the budget could indeed be accomplished soberly and rationally. Unburdened by the need to secure re-election, representatives could weigh dispassionately the pros and cons of the limited range of economic options available to them and through open and constructive debate arrive at the combination of fiscal measures deemed most likely by the majority to deliver success.
This is, after all, the way “Citizen Assemblies” are intended to operate. Their virtue and utility lying precisely in the fact that they are not composed of political parties. Supplied with expert advice, formulated and delivered with maximum transparency, the Citizen’s Assembly is tasked with considering the matters submitted to it in a manner calculated to produce the rational, evidence-based, collective decisions that Parliaments, riven by rancorous partisanship, are no longer able to deliver.
The problem, of course, is that in dealing with the challenges emerging from something as large as a nation’s economy, the human consequences of applying the conventional economic wisdom are almost always intolerable. When the 1929 Wall Street Crash sent the economy of the United States into a tailspin, the experts of the day called upon the administration of Herbert Hoover to apply the accepted remedies. Accordingly, Hoover’s Treasury Secretary, Andrew Mellon, responded with his now infamous instruction to:
“Liquidate labour, liquidate stocks, liquidate farmers, liquidate real estate. It will purge the rottenness out of the system.”
In following this advice, however, the Hoover Administration inflicted extreme hardship on millions of Americans, and in so-doing not only liquidated itself, but also came alarmingly close to liquidating the whole capitalist system. It took an American aristocrat, Franklin Roosevelt, with more intelligence and a bigger heart than Hoover and his conventional wisdom, to rescue American capitalism from itself.
Mutatis mutandis, the response of successive New Zealand governments to the Great Depression mirrored the conventional economic thinking of Mellon and his advisers. Saddled with obligations it could no longer afford, the Reform and United Parties cut, cut, cut, and cut again – unleashing massive deprivation and misery across the country. This time it was Labour that came to capitalism’s rescue.
Astonishingly, given these historical precedents, there are still individuals and groups advocating Andrew Mellon-style “liquidations” in 2025. The Taxpayers’ Union’s “Go For Growth” alternative budget urged the same massive reductions in state expenditure that doomed the 1931-35 Coalition Government. A level of state retrenchment that even the TU’s heroine, Ruth Richardson, thought better of attempting!
Nicola Willis is a considerably wiser Minister of Finance than the author of “The Mother of All Budgets”. Though enmeshed, like all MPs, in the logic of partisanship and all its consequent distortions, she nevertheless produced a budget that, while curtailing state spending and scaling-back its obligations, fell well short of the Milei-style “chainsaw massacres” demanded by the more extreme disciples of Kiwi neoliberalism.
No, she did not address the looming crisis in health: how to accommodate the medical costs of an ageing Baby Boom generation. The alleged unaffordability of NZ Superannuation serves as a proxy for this massive health-care challenge to the state’s fiscal resources. NZ Superannuation, by itself, is predicted to absorb less than 8 percent of GDP by 2060 (it is already well above that percentage in many OECD countries) declining sharply after that date as the Boomers pass into history.
That said, lifting of the age of eligibility for NZ Super to 67 or 68 would contribute significantly to absorbing the projected surge in aged health expenditure. It’s a move Willis would undoubtedly grab with both hands if NZ First was no longer a participant in the Right’s coalition negotiations.
What saved New Zealand from the chainsaw, however, was, indisputably, the scaling-back and reining-in of Pay Equity. In the absence of this measure (long-planned it would seem, even if introduced in a parliamentary ambush) Willis would have been forced to contemplate either, ideologically unacceptable tax increases, truly savage expenditure cuts, increased borrowing, or, most likely, a combination of all three.
The sheer size of the state’s projected Pay Equity liability certainly adds weight to the Coalition’s criticism of the now dismantled Labour regime. (Leaving hanging the question of how the Left proposes to pay for its reinstatement.) By dramatically reducing that liability, Willis was able to avoid presenting the “austerity budget” her opponents were anticipating. The Pay Equity savings also paid for the 20 percent “Investment Boost” tax write-off. A supply-side measure that promises considerably more productivity bangs for the State’s foregone bucks than a mere corporate tax-cut.
Certainly, Willis’s second budget was not the document that an AI-assisted finance minister, shorn of party-political constraints, would have presented. (Although that scenario may arrive a great deal sooner than many of us would care to imagine!) Inevitably, it played favourites – rewarding the Right’s friends at the expense of the Left’s electoral supporters. But that is the price we pay for accepting that the fiscal temptations of democracy will always be too strong for politicians to resist. In theory Parliament is a “citizen’s assembly”, in practice it is a rancorous gathering of ideological clans.
So, yes, there is, and likely always will be, a lot of political noise emitted by the process of passing the annual appropriations bill. Plenty of “sound and fury”. But is it also “a tale told by an idiot, signifying nothing”?
No. Not yet.
*Chris Trotter has been writing and commenting professionally about New Zealand politics for more than 30 years. He writes a weekly column for interest.co.nz. His work may also be found at http://bowalleyroad.blogspot.com.
33 Comments
Denmark increases pension age.
The retirement age at 70 will apply to all people born after 31 December 1970.
https://www.bbc.com/news/articles/cvg71v533q6o
I've already taken it as a given that I will be working fulltime until 70. The un- asset tested scheme we're currently running will eventually send the country broke.
Repeating my post from last week:
We could debate the merits of budget allocations indefinitely however Willis is still spending several billion more than Robertson forecast this period had he remained Finance minister.
It is the gap between paragraphs 4 and five that neither CT and especially, Nicola Willis effectively addresses. I feel CT's paragraph 4 encapsulates succinctly what is needed, but it is repeatedly clear that this government and it's predecessors, as well as the opposition doesn't understand it or how to move the economy to it.
In citing Hoover's government's response to the 1929 Wall Street Crash (“Liquidate labour, liquidate stocks, liquidate farmers, liquidate real estate. It will purge the rottenness out of the system.”) CT fails to point that the only bits remaining were the non-productive money parasites of Wall Street and the politicians themselves, and then "in so-doing not only liquidated itself, but also came alarmingly close to liquidating the whole capitalist system" creating a flaming great arrow to the real cause of the problem, not the bits they 'liquidated'!
This government is doing great harm, the opposition doesn't see that and their bleating from the benches offers little hope to ordinary Kiwis as they all entrench the damage created by global upheavals.
It is the gap between paragraphs 4 and five that neither CT and especially, Nicola Willis effectively addresses. I feel CT's paragraph 4 encapsulates succinctly what is needed, but it is repeatedly clear that this government and it's predecessors, as well as the opposition doesn't understand it or how to move the economy to it.
I think the core issue is that they don't have the cojones to communicate the larger issues, 'plant the seed' so to speak, with the public and gradually reinforce long term an large scale solutions to the public in order to gain widespread support. If they told the public outright that we cannot afford high end healthcare and NZS with real projections and drilled this in over time, so people could start thinking of what they want to tradeoff, have discussions with family, friends etc and public debate of pro's and cons etc, then we would likely have better engagement and more educated voting and solutions. Instead we have had cancelled ferries, lack of communication and public engagement, and understandably a more disgruntled public who feel left out of the loop, and thus not accurately represented by their government.
I note that the record NZ trade surplus last month was again from primary industries. Yet we have since the Lange Labour government had successive governments with “anti” ag policies. Lately the policies that make borrowing by ag difficult, or the allowance of 95000 ha to be sold for the benefit of offshore owners carbon farming.
The poor productivity performance from our economy perhaps has something to do with the lack of a level playing field for our best industries compared to the residential housing market. So yes, the 20% write off will help but seems superficial when compared to the ongoing misallocation of capital and policy settings.
My words to express your ideas Murray, our pollies and the bureaucrats who create and administer these policy settings, is that they lack imagination.
I'm not so sure about the policies being "anti-ag", but I do know farmers get fleeced at almost every turn by their suppliers. But if they run their business well (farming is not a lifestyle, it is a business) then when they decide to retire and sell up they retire on more wealth than most Kiwis can dream of. But your pointer to residential indicates the real problem in NZs economy, that of the private banks being able to print money and therefore direct its direction into the economy. This is the most egregious failure of our governments since the Lange one deregulated the banks and allowed them to 'print money'. None of the government's since have effectively managed and controlled the amount of money in circulation since then, thus virtually guaranteeing the failure of any economic policy they put in place if it threatens banks profits.
Read and re- read Chris’s article but cannot find the support in it for the line “ rewarding the Right’s friends at the expense of the Left’s electoral supporters”. Even if that is referring only to the pay equity clawback it does not seem supported by the acknowledge of “the sheer size of the state’s projected Pay Equity liability” (and lets not forget that under Labour the pay equity legislation had been expanded to stray into the realms of general pay claims). So a nice headliner but not an accurate reflection in my interpretation. Guess I’ll have to read a third time …
BradJ,
Well, the increased funding/subsidy for 'Independent' schools of $15.70 million over 4 years-though small- is certainly a nod to the Right. That brings the annual subsidy to $46.20 million.
I find it quite funny that Seymour can refer to subsidies for Independent schools with no apparent sense of irony. Shouldn't independent schools stand on their own feet?
Yep had the same thought re charter schools.
No, she did not address the looming crisis in health: how to accommodate the medical costs of an ageing Baby Boom generation. The alleged unaffordability of NZ Superannuation serves as a proxy for this massive health-care challenge to the state’s fiscal resources. NZ Superannuation, by itself, is predicted to absorb less than 8 percent of GDP by 2060 (it is already well above that percentage in many OECD countries) declining sharply after that date as the Boomers pass into history.
How do we convince the ageing demographic that their children and grandchildren will struggle to own a home, get lumped with ever increasing taxes on top of cost of living, so they can have their universal super and public healthcare expectations met? My bet would be that they would vote to keep things the same and lump the cost to the working population as a majority opinion (non unanimous, there are plenty of kind baby boomers as well). The core issue is that several groups, be it age brackets, income brackets etc will have to sacrifice something to make things equitable, and nobody wants to perceive to 'lose' or 'give up' anything. For example nobody on high incomes wishes to pay more tax, however their parents or gradparents will have had 66% tax for a decade or more to help fund public infrastructure that lasted 50+years. Said individuals want the same infrastructure available to them, btu don't want to pay additional tax while simultaneously minimising, or avoiding tax via trusts, companies etc. We can't have our cake and eat it too.
We are coming up to KiwiSaver 20 years. That (done properly) is the solution that permits means testing of national super. Don’t forget politicians, many bureaucrats, the judiciary, and other group have separate super schemes and are alright Jack, whereas most “ average kiwis” have never had a job that offered a super scheme and missed the point (old perennial of lack of fin literacy in this country) and did not therefore separately provision. So to suddenly cut the super to those currently or about to get super is not right. But anyone with at least 20 -30 years in work has time and opportunity.
Yes, means-test super - at least Nicola Willis pointed out on Q+A on the weekend that Australia means-tests super. But, her alternate 'solution' to taking that action now, was to raise the KiwiSaver contribution. Talk about 'late to the party' if she's going to compare us to Australia in that regard! I suspect she knows how ridiculous her "no worries, we've addressed that elephant in the room" implication is.
I did a five-minute ChatGPT exercise to attempt to determine how a means-test might be structured here based on the approximate net wealth of our existing cohort of superannuitants. Here are the broad parameters I came up with;
- With threshold set at $2,000,000+ in net assets, an estimated 25% of 65+ meet that threshold.
- AKL median property price is $1,000,000 at the moment
- A 25% savings on NZ Super would yield an estimated $5.4 billion per annum.
Discussed it briefly with M Reddell on croakingcassandra
No tell us who is going to do this, how you will deal with foreign Trusts, how you will deal with local trusts, family farms, company income not distributed, assets held undisclosed in non reciprocal countries, gifts, non market value sales and on it goes ?
People throw asset testing around like its simple. All it does is catch the local ma and pa, primarily those who have simple affairs and have been on wages. Exhibits 1 and 2, Student allowance and Residential Care subsidy.
We would need a massive new division to (MSD?IR?) and a large team or forensic accountants and lawyers.
It's actually very easy at that threshold level - as my AI questions revealed. Within seconds - the amount of information you are pointed to always surprises me. It was easy to get an understanding of the wealth distribution of over 65s in NZ. Think about it - all properties have titles; all vehicles have registrations; all trusts and companies report and amend data annually; all savings account balances are reported annually to IRD. Government only needs to run similar, but more sophisticated (i.e., by individual taxpayer) data searches.
NZS is such a small amount of money for those with large accumulated asset wealth, that I suspect those who know they reach and exceed the threshold are not going to risk everything to try and manipulate the tax system for this kind of amount of money. They simply will not register for super and if on it, won't challenge being cut off.
What I didn't ask AI - which I should have - was how many over 65s currently do not claim super. If 50% of the 25% of those who qualify and exceed the threshold aren't claiming it anyway, then the potential savings would be much less.
are not going to risk everything
There is no risk.
And I refer you back to exhibit 1 and 2 and introduce exhibit 3, asset testing of main welfare benefits.
It's honesty based self disclosure.
The system is a bluff.
and of course Kate we will also need yet another accounting team to deal with the tens of thousands of 18-19 years olds who require their parents to be income tested.
Good luck getting many of these kids to find out what ma and pa is earning - be as difficult for the wealthy ones as it will be for the dysfunctional broken one's.
The Govt continues to add to a mountain of complex rules and bureaucracy that requires manual calculations and input.
and of course Kate we will also need yet another accounting team to deal with the tens of thousands of 18-19 years olds who require their parents to be income tested.
A complete exaggeration, rastus. Again AI is your friend here:
While specific figures for 18- and 19-year-olds [on the Job Seeker benefit] aren't readily available, we can estimate based on the overall data. Assuming an even distribution across the 16–24 age range, which spans nine years, each age cohort would represent approximately 11.1% of the group. Therefore, 18- and 19-year-olds combined would make up about 22.2% of the 16–24 age group. Applying this percentage to the estimated 26,700 Jobseeker Support recipients in the 16–24 bracket suggests that around 5,930 individuals aged 18 and 19 were on Jobseeker Support as of June 2022.
And within seconds, your "tens of thousands" have turned into around 6,000.
8,964 non working age benefits of of March. All needing individual processing.
Point remains, the system is a manual process, not anything like tax. Each layer of complexity requires more and more to process.
That is not the purpose.The default setting is no benefit for 18/19 year olds and the intentional difficulty in proving otherwise will result in less applications....standard National practice.
Nevermind the consequences (or additional costs)
What do you men by net assets, does that include primary residence? Australia is means-tested but it excludes your primary residence, so plenty of senior citizens in houses >$5m receiving the full state pension. Is a non-means tested super generous, yes of course. But you'll find it evens out across a working persons life. We pay higher GST than Australia for example, less generous health care, less generous first home buyer grants etc etc.
The issue we have is we fall behind in overall economic activity and wealth creation. There should be a 1y cap on unemployment benefits. Get a job or move if you cant find one.
The issue there is, if someone is living on a benefit, how are they expected to be able to afford a move to a more prosperous area, town, city etc?
The bigger issue there is that the savings derived from that are minor in comparison to say, a GST rise or a means-test on super. So, really, very little effect on our overall fiscal position.
Net meaning less mortgages/debt on property/assets. Yes, I understand our GST is higher than in AUS and indeed, as we'll need to increase revenue somehow in a significant way in future - and an increase in GST is perhaps the easiest choice politically. In talking with Michael Reddell on his blog, that is what he believes most likely. And coupled with that he's suggested company tax should come down.
Problem I have with that is that GST is a more regressive tax than taxing cumulative assets by way of a means-test on a universal benefit.
Those seniors living in the multimillion dollar owner-occupied homes have the option of funding that continued occupation by way of reverse mortgages. And of course that changes the net calculation of the asset year by year. Super payments would start up again should someone move from over to under the threshold.
As I mentioned, I only did a quick bit of AI research to get an understanding of the dollar value of the government's revenue savings in setting a potential threshold for comparison to a rise in GST from 15% to 20%.
My point being, as our nation's fiscal situation deteriorates yoy - at some stage - we have to explore revenue increases as opposed to tax breaks to attempt to stimulate the economy.
The glaring omission is an investment property capital gains tax. We definitely do not need higher GST, it needs to be reduced if anything. If I think our tax system is too generous to property investors, then it is. We had it until Temu Ruth Richardson took it away and now we are discussing increasing tax on food for our poorest to fund tax free investment property gains.
We have that with the bright-line test (effectively a CGT), although limited to sales within a certain period (was 10 years, now 5 years).
But it is not a broad-based enough tax to bring in the kind of revenue needed to return us to a budget surplus. That's why GST is so popular within the economics literature (as are land value taxes). In fact, Michael Reddell didn't even think a CGT on all property sales would be sufficient to claw us out of the mess we're in.
And of course the key reason we cannot return to budget surplus is because universal super is growing at such an alarming rate. That's why I'd rather explore cost reduction for a broad-based expense line, as opposed to instead looking to a broad-based tax, such as GST or LVT.
"My point being, as our nation's fiscal situation deteriorates yoy - at some stage - we have to explore revenue increases as opposed to tax breaks to attempt to stimulate the economy. "
Kate what you're ignoring here is that if the nation's fiscal position is deteriorating, then the people are suffering much worse. That is the entire basis of what I have argued many times. Our governments need to create and build a national resilience package that first and foremost must dump the old, flawed paradigms that they have clung to since at least 1984. Increasing tax or population is not a solution.
Sounds good, murray86, but what does that national resilience solution look like?
We could easily close off immigration to exclude any new permanent residencies. That would see our population decrease somewhat, especially when you consider outbound migration of New Zealand citizens and permanent residents.
And indeed, that would possibly help with hospital admissions and waitlists - and school enrollments.
Do you think the savings would be enough? I'd doubt it. Our annual increases in population do not run into very big numbers (150,000 being the highest increase in recent history);
https://www.interest.co.nz/charts/population/population
Here are our net long-term migration numbers;
https://www.interest.co.nz/charts/population/net-long-term-migration
Well for a start the supplementary winter heating allowance should always have been better targeted. Any household with income in excess of say $100k to be excluded and better to be clawed back from the actual power bill so as to make sure it is spent to purpose.
I need it, the spa consumes more power over winter.
A friend of mine just got solar installed. They set the spa to heat in daylight hours only, and got a timer wired in with the hot water cylinder circuit so both only are in use in daylight hours. Seems to be working a treat and 90% of generation is being sold back to the grid, thus lowering ROI. Will be interesting to see how it stacks up over winter, but looking very promising so far.
Was being a bit cynical re need, but thanks for the tip.
I have wet back on wood fire, currently looking at adding solar for the summer months. I will look at you suggestion when I seek prices etc Best use of solar is for of course self consume, sell back margins not great.
edit-
They must have massive solar if they run spa and hot water and sell 90% back.
I suspect maybe 10%
The only way a viable solution can be achieved is through some form of political consensus. Employ a neutral body of experts to establish what’s for the best and get the government and opposition to sign off on it. Theoretically if all should do so then the anti elements in the electorate shouldn’t single out any one party to demonise. In the meantime I’ll just go out on the deck and wait for a pig to fly by.
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