Dave Stewart Whakatane Have your say 1st June 2024
https://democracyproject.nz/…/bryce-edwards-budget…/
Budget 2024 shows NZ has some tough choices to make – Scandinavia or Singapore
May 31, 2024
To truly understand yesterday’s Budget, it’s worth returning to a statement made in 2020 by the then British High Commissioner Laura Clark that New Zealand has “Scandinavian ambitions in terms of quality of life and public services, but a US attitude to tax”. Her point is that New Zealand politicians want an economic setting that doesn’t work – low taxes mismatched with high spending.
Eventually, the country must choose to either follow Scandinavian high taxes and high spending or US low taxes and low spending—or, indeed, something in the middle. But what is not a serious option is what Labour and National governments continue to promise: relatively low taxes and relatively high government spending.
Yesterday’s Budget continued with that Frankenstein mix, which has produced a relatively incoherent and messy Budget. The centrepiece is an array of complicated tax credits, boosts to Working for Families and tinkering with tax thresholds. Although the result is that the Budget delivers “tax relief” and “fiscal responsibility,” which will have some immediate voter appeal, there will be doubts about whether both of those are illusionary.
Hence, no serious economist or political analyst could endorse Budget 2024 (nor the last Labour Government’s budgets) as a credible blueprint for creating a good society. This Budget, like previous ones, just hasn’t represented the Scandinavian or US path; instead, it is continuing to try and force the best of both models to fit together.
The 2024 Budget embeds the high-spending, low-tax settings
The best big-picture analysis of this year’s Budget comes from Danyl McLauchlan, who was awarded the Voyager Media Award for “Best Columnist in New Zealand” last week. His online Listener column yesterday was short and to the point, arguing that Finance Minister Nicola Willis has attempted to spend more on the welfare state while giving tax cuts and promising an eventual return to surplus. He says that once you ignore the accounting tricks, the Budget fails to deliver any of those things – see: In praise of deft accounting tricks (paywalled)
The critical point of McLauchlan’s analysis is his explanation that New Zealand’s economy has been hampered by severe structural weaknesses for decades—especially in terms of low growth, low tax, and high expenditure—but then Covid pushed Labour to supercharge the settings in 2020.
Much like how Naomi Klein’s book “Shock Doctrine” warned that rightwing governments would opportunistically use natural disasters and emergencies to push through ideological agendas, under Jacinda Ardern and Grant Robertson, Labour suddenly ramped up spending, producing a much bigger state without any real commitment to returning to pre-Covid levels. And now, Willis and her Government have embedded the Covid settings with their first Budget (despite some promises to downsize in the future).
McLauchlan explains: “When Covid hit, the government responded to the crisis with a huge one-off emergency spend: vaccines, the wage subsidy, the stimulus funds. But there was also an additional increase in the overall size of the state. This was locked in during Labour’s post-Covid budgets, but the additional spending wasn’t matched by an increase in taxes. This created the structural deficit Treasury has been warning about with increasing urgency. It’s the macroeconomic equivalent of buying the groceries with your credit card.”
After factoring in the Government’s numerous accounting tricks and the political realities, National’s tax cuts won’t be meaningful, government departments will struggle, and future budgets will get bigger. McLauchlan concludes: “it’s hard to see any serious change in direction from the course set by Labour. If we were speeding towards a cliff before, we’ve merely adjusted in a slightly different direction, optimistic that a bridge will suddenly appear before we launch into the air.”
