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Budgeting for People’s Needs

On 25 May, the Government will announce its last Budget before the election. Budgets are always political statements whose facts are difficult to spot amid the tornado-like spin, but pre-election Budgets are even more so. But it is worth stating the obvious: Budgets should be about making lives better for New Zealanders.

Finance Minister Steven Joyce in a pre-Budget speech said there were four key areas for the Budget: better public services; more infrastructure spending; reducing government debt further than previously targeted, and tax cuts. Given the way public services have been run down, rebuilding – let alone improving – them needs revenue which will be taken away by the last two “key areas”.

The Government’s announcement that it wants to reduce net government debt beyond its 20 percent of GDP by 2020 target to “between 10 and 15 per cent of GDP by 2025” squeezes public finances even more, leaving less available for needed spending on public services. There is no magic about 20 percent, let alone 10 to 15 percent. If we measured net debt taking account of the New Zealand Superannuation Fund, debt would be around 11 percent of GDP now and 7 percent by 2020. A somewhat higher debt target, or pushing the 20 percent target date out a few years would significantly increase the funding available.

There is a long list of needs that have built up over the past 8 years as a result of the neglect of public services which are a part of our ‘social wage’: health, housing, better support for people made redundant, restoring the value of Working for Families, plugging gaps in education funding, addressing poverty, funding equal pay and other pay anomalies in the state services, environment protection and many more. Most of these are needs, not ‘nice to haves’ and are exacerbated by a rapidly growing population. The funding requirements considerably exceed a cap on spending of 30 percent of GDP or less.

It should be obvious that we cannot afford cuts in revenue – tax cuts – when the needs are so great. More revenue would allow us to both improve public services, including infrastructure, and pay off debt.

We must have a much better balance between the needs of our people and targets for debt and expenditure. Needs should drive the targets; currently the targets are suppressing the public services and support we need for a decent society.

Download the full Bulletin: Economic Bulletin 188 – April 2017