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Cuts don’t make costs disappear

Written By: - Date published: 11:19 am, March 30th, 2011 - 58 comments
Categories: budget 2011, Economy, public services - Tags: , ,

Key and English are trying to soften us up for big public service cuts this budget. They tell us it’ll just be ‘nice to haves’ and that the private sector will step in to fill the gap when they cut too close to the bone. The important thing to realise is that every time the public service doesn’t provide us with something either we have to buy it out of our own pockets (usually at greater cost) or we don’t get it at all.

It’s like when National cut ACC. It didn’t stop people with injuries needing treatment and income to live, it just stopped them getting that from the state. Instead, they have to pay out of their own pockets or if they can’t afford it, as is likely, they just end up bankrupted and destitute.

Now, I’m not a ‘not one step back’ kind of guy. If there is wasteful government spending, chop it. Start with the Don Brash retirement fund, oops, I mean the 2025 Taskforce. Cut, too, motorways where the costs outweigh the benefits and subsidies for polluters. But don’t cut funding for early childhood education which delivers $13 of benefit for each dollar spent. The cuts that have already happened there have just pushed the costs on to parents. Some are now paying $60 more a week. Many simply can’t afford it and we as a country lose out on those kids not getting the best start to their education (of, course the right have never really understood the concept of investment – pillaging is more their forte).

But the cuts that are coming are much deeper than that. $3.75 billion in real terms out of existing programems by my estimate. A lot of that will come just from not giving departments more money to match their increased costs to provide the same level of service due to inflation and population growth. Some more will come from ‘re-allocations’ which will see existing services slashed to pay for Christchurch. And some will come from out and out cuts.

It doesn’t have to be like this. The government has choices. It has chosen to create the fiscal mess we are in by cuting government revenue as a percentage of GDP from 33.5% in 2008 to 29% today. You want to know where the hole in our budget came from? There it is. And it was caused by giving $10 billion worth of tax cuts to the wealthiest New Zealanders.

58 comments on “Cuts don’t make costs disappear”

  1. lprent 1

    Yep. The government created its fiscal mess with tax cuts. Roll those tax cuts back.

    • Tigger 1.1

      Too right. It’s important we all keep our eyes on this ball because they’ll try to throw a dozen arguments at us that make their plans seem sooooo reasonable – undo the tax cuts, Bill.

    • Jim Nald 1.2

      $10b tax cuts –> 4.5% GDP hole

      Whoopdeedoo!

      Y’kno wat?
      I’m fresh and I’m ambitious for NZ.

      • tsmithfield 1.2.1

        Wrong. The tax cuts were fiscally neutral.

        • KJT 1.2.1.1

          So_ Thats why we have to borrow 300mill a week for them.

        • mickysavage 1.2.1.3

          The tax cuts were fiscally neutral

          Crack up TS, crackup.

          • Pete 1.2.1.3.1

            Have you kids ever stopped to think that the small percentage of the population who produce either can’t or don’t want to work more to support everyone else.

            • Bright Red 1.2.1.3.1.1

              Which of the following do you not include in this “small percentage of the population who produce”?

              The 2,200,000 workers?

              The 270,000 who want work but can’t find it?

              The 900,000 who are children or retirees?

              The 200,000 students?

              The 180,000 stay at home parents?

              Because that’s nearly everyone. And most of the rest have chronic illnesses.

            • mickysavage 1.2.1.3.1.2

              Pete

              To be frank I got a pretty hefty tax cut thanks to smile and wave. I did not need it. It does not make me work any harder or employ any more people. All it does is tempt me to go on more overseas holidays or to buy more crap, both of which are bad for the economy and the planet.

              The Government should take all the tax cuts back to pay for Christchurch.

              That way I know that the police will still function, hospitals will do their jobs, schools will keep educating and things will still happen. And I would hate to live in a New Zealand where we have huge numbers of people unemployed which is what will happen.

              And to top it all off I would like to know that there will be superannuation still when I retire and it will not require putting my kids through servitude to make sure I am paid it.

              So Mr Key take the tax cut back.

              And Pete. Do you understand that the tax cuts are not fiscally neutral but are running up crown debt?

              • Herodotus

                To be frank I got a pretty hefty tax cut thanks to smile and wave- Well MS many of use needed the cuts no matter how small to counteract the increased cost of living, tax creep etc that Lab turned a blind eye to. Remember Cullens chewing gum tax cut that was to be paid for by ??? a new Carbon tax, Generous to a fault.
                Nat are no answer nor awere and are Lab. Remember many of todays isues relate back to the Lab years and the wasted opportunity that the boom based on short term cheep money and consumerism gave. And to play Devils A, how was Lab to fix the recession- A Christmas budget that we had to blindly believe in with no details.
                NZ has been living well beyond its means (Current Account problems) and all we have had is tinkering. I am sure you will disagree, but I have seen little that Lab did do that was long term, and they have the same senior management who will follow the same old lack of vision. Nat or Lab not a great choice for Kiwiland.

                • Colonial Viper

                  LAB did not address some critical issues quite correct.

                  But I have heard the Labour hierarchy talk about them more plainly than ever before – they are not ignorant of what needs to be done.

                  Of course, the trick is in convincing the electorate and getting the political capital.

                  • Herodotus

                    Unfortunately all I have heard was Phils and Davids post Christmas speeches great words but when ou look a bit closer just like every other speech before, not alot of depth. And all I get here was how great the 99-08 years were. If you look there was some worrying undercurrents that many here have ignored and were never addressed then or now.
                    If the heirachy are so sure of what needs to be done, why are they so reluctant to tell us. The things I have heard inspire me as much as Bill English.
                    Sone the way things are going anyone who is not on welfare will be considered rich !!!!

                    • Colonial Viper

                      Well you know I’ve a strong lean to democratic socialism, don’t expect me to spin excuses for the torrent of private debt households built up and the continuing exclusion of assets from the tax base through to 2008 and now.

                    • Herodotus

                      Yes, but there are many here who canot see the faults of the left and what they allowed and did not deliver in the years of power. Many of todays current issues have a past, that is not seen by many here. Perhaps if they did then those parties purportedly on the left whould be forced thru a groundswell to change and delivery leftish policies, and many who are confussed as to where the point of difference between Nat and Lab really is/are. But aslong as things are Nat and Lab are interchangable and many see only marginally difference as it relates to their/my/your everyday life and how difficult things were and are.

                    • Colonial Viper

                      No doubt. NZ needs a little bit more of its Left than one which is simply a kinder, gentler, more consultative version of the Right Wing.

              • Peter

                Micky

                The tax cuts were not fiscally neutral. Do you have any idea how much tax revenue was lost as a result of the cuts?

                • Colonial Viper

                  According to Cunliffe’s website, $4B p.a. of Govt revenue was lost in the tax cuts, a third of which went straight into the pockets of the top 5% of earners.

                  And of course Govt revenue took another massive hit due to the declining performance of the economy.

                  National really are economic vandals.

                  • Peter

                    Thanks. So the decline in spending and employment added on to the 4 billion or so. Incredible, 4 billion is 80% of what we are told Government requires for CHCH!

                • Peter

                  The tax cuts were not fiscally neutral. Do you have any idea how much tax revenue was lost as a result of the cuts?

                  Agreed entirely. Where I say this in italics above I am quoting TS and I then say “crack up TS, crack up”.

                  From memory the country loses about $500m a year for the first couple of years and it is only the “fiscal effects” from the tax cuts line which is herculean in its expectation which then brings things back into balance. CV’s figure seems about right for the total over ten years.

            • KJT 1.2.1.3.1.3

              No. I do not want to work more to support these people.

              Politicians.
              Australian Bankers.
              Million dollar a year accountants pretending to be managers.
              Insider traders in finance companies which are then bailed out.
              Business people who cannot start their own business so they want to steal ours.
              Paying for trained staff, police protection, rule of law and wage subsidies for businesses that cannot pay their own way.
              Farmers who do not pay taxes then have their hands out if the weather changes.
              Polluters who we are paying for so they can be exempt from the ETS.

              I am happy to pay taxes for a fair and decent society where everyone has a chance and I can live even if I get sick or have an injury.

              • logie97

                Heard on Breakfast TV on Monday to Petra
                “… we don’t carry a lot of debt as government…” is precisely what Key said.

                captcha: admits

  2. ianmac 2

    Patrick Gower noted (much to my surprise) that with the joining of Forestry and Fisheries (which they had separated in the 90s to save money?) they appear to have kept two highly paid Ministers. Surely, he said, it would be hypocritical to keep two Ministers for one new single entity?

    • Jim Nald 2.1

      Is that the TV3 guy? Gosh, a political journalist who is awake and has his eyes open?
      What is the world coming to?? I might even start to watch TV3 news.

      I love how this ‘austerity-for-you-but-not-for-me’ Government works!

      • ianmac 2.1.1

        Jim Note I said “much to my surprise” for it is unusual for Gower to say anything other than be down on Goff/Labour. I suspect that Gower is the sort who would first spot who was down to the bullies, then help do the kicking.

        • Jim Nald 2.1.1.1

          My message to Gower, if I meet him, would be simple:

          1. Do your duty as the Fourth Estate and not the Tory’s Estate

          2. Remember and give voice to the vulnerable, the poor and the struggling folks during these difficult times

  3. infused 3

    A 50% increase in the public sector under Labour. I think cuts do make costs go away.

    • KJT 3.1

      Like corporatising power companies does. Yeah right!

    • Colonial Viper 3.2

      A 50% increase in the public sector under Labour. I think cuts do make costs go away.

      Providing efficient, timely, *sufficient* public services is an investment in our communities and in our people. It will make communities stronger and ensure that citizens feel cared for.

      Of course National doesn’t give a shit about this, cutting services to pay out tax cuts to the already rich is the usual agenda, earthquake or no.

    • The Economic Illiteracy Support Group 3.3

      A 50% increase in the public sector under Labour.

      Please post a link – because Ganesh Nana from BERL said on Morning Report this morning that the government’s share of GDP rose less than 10% through the 2000’s, and was in line with the rest of the OECD at around 20% of economic activity. So what is it that you know that the economists don’t?

      • Lanthanide 3.3.1

        I think he means a 50% increase on the base amount, eg $100bn to $150bn, rather than 50% increase straight, eg 20% to 70%.

    • Peter 3.4

      Cutting 2000 odd jobs over the last 2 years is hardly a game changer. Its more like making scapegoats of a few to make it look as if the Blue team are doing something.

      eg If these laid of Public Servants earned, say, $60,000 salaries on average that’s a loss of about 3 million PAYE and 1.2 million GST and over 7 million in consumer spending directly to the private sector. Those working then have to earn income to pay these people the dole.

      As we know Mr Key believes that the private sector is crowded out by the public sector, although this is not a given. He wants us to believe that cutting back 2000 Government jobs will miraculously bring about 2000 private sector jobs.

      Someone please convince me that he is right?

  4. Rodel 4

    It will be ‘5000 cuts to public service employment’ then nearer to budget ‘4,000’ and on budget day just ‘2,500’… ..”at this time with earthquakes etc etc we are so nice we couldn’t be so mean…”

    Seen and heard it all before but it still works.”

  5. Zaphod Beeblebrox 5

    I’d love to see the breakdown of which ministries/departments are getting the cuts. Treasury, PM’s dept, NZTA, Telecommunications all seem pretty back office and ‘nice to have’. Wonder if they have lost any numbers?

    • ianmac 5.1

      Hasn’t the PMs office blown out, more than doubled? Probably more staff in security details like two men to guard Key in Hawaii? And the paranoia in the PM’s office takes a lot of guarding and then a huge increase in PR staff who watch the threat from people like Goff and like Peters. I mean someone has to design the strategy for the undermining.
      Any actual numbers of staff pre 2008 until now. There is an angle to counter English cuts. Cut State Service staff but increase PM Staff???

  6. ianmac 6

    Tony Ryall in the Herald: “As of 31 December last year, there were 36,973 people employed in what Mr Ryall called “core Government administration”. (….38,859 state employees under Labour.)

    “The reduction was made up by the 300 police officers, 1600 teachers, 1000 nurses and 500 doctors National had added to “frontline” services,” he said.

    Really? Nice round figures. eg:National has added 1600 teachers? How so? Where? Same questions about the rest. It takes 7 years to train a doctor so to “add” 500 in 2 years….?
    http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10715932

    • Bright Red 6.1

      yup. and what’s the normal rate of addition of new teachers, doctors etc. Who made the funding decisions, given that until July 2009 we were still under Labour’s last budget?

  7. tsmithfield 7

    Cost cutting doesn’t necessarily mean less. It can also mean finding better and more efficient ways to do the same thing. This is exactly why unemployment has been slow to improve both in the US and here. Firms lay off staff at the beginning of the recession and are forced to find more efficient methods. This has lead to firms being more profitable, and less likely to take staff back on because they have suddenly found they can do equally well without them.

    If this is the case in the private sector, then no reason it wouldn’t apply in the public sector also.

    • Colonial Viper 7.1

      This has lead to firms being more profitable, and less likely to take staff back on because they have suddenly found they can do equally well without them.

      Yeah you hit the nail on the head, the private sector has discovered that you don’t need to employ people or give them good wages to be profitable

      In fact companies have learnt that by making more people unemployed, and squeezing wages down, they become more profitable, not less.

      And who bears the costs of all these newly unemployed, and the low paid workers? Families and communities.

      The same families and communities that now need MORE social services from the Government, not LESS.

      Evil fucking right wing scheme.

      PS at least CHINA of all countries has figured out that if you do not soak up the excess labour pool created by these “productivity” improvements (and the resulting wealth inequality as money gets diverted out of the pool of wages into the pool of shareholder profits), you will have increasing social and political disorder.

      National are just blind enough to think that won’t happen in NZ, or that they can get away with it.

      • tsmithfield 7.1.1

        “Yeah you hit the nail on the head, the private sector has discovered that you don’t need to employ people or give them good wages to be profitable”

        Yeah. We could go back to the days of hand-written invoices and the abacus. That would employ a lot of people.

        “In fact companies have learnt that by making more people unemployed, and squeezing wages down, they become more profitable, not less.”

        I prefer to think of it as liberating people from mind-numbing repetitive jobs such as screwing caps on bottles. Automation is a wonderful thing.

        “PS at least CHINA of all countries has figured out that if you do not soak up the excess labour pool created by these “productivity” improvements (and the resulting wealth inequality as money gets diverted out of the pool of wages into the pool of shareholder profits), you will have increasing social and political disorder.”

        Well, what do you think happened to all those jobs that used to involve hand-written invoices and abacus? We found all sorts of other, often more fulfilling occupations for these people. That’s got to be good. Right?

        • Colonial Viper 7.1.1.1

          I prefer to think of it as liberating people from mind-numbing repetitive jobs such as screwing caps on bottles. Automation is a wonderful thing.

          Yeah you liberate them from mind-numbing repetitive jobs into mind-numbing society excluding, pverty stricken non-jobs.

          Fraking brilliant.

          Point remains though – in a capitalist system these corporations have decided that their shareholders can and should make more money by laying people off and suppressing wages.

          That is what is happening to your friends, your family, your kids, people you know in your neighbourhood.

          Good of you to back that system up, you turncoat.

          Well, what do you think happened to all those jobs that used to involve hand-written invoices and abacus? We found all sorts of other, often more fulfilling occupations for these people. That’s got to be good. Right?

          You’re an idiot.

          Underemployment rate in NZ over 15% and in the US over 20% and you have the nerve to pretend that we found more fulfilling occupations for people? Of course we did. For about 5-10% of the population. Everyone else – your place is on the scrap heap of unemployed, part time, minimum wage, casualised, no-benefits, non-unionised, right to be fired McJobs.

          Wake up asshole.

      • KJT 7.1.2

        Other companies found that by lending money to people so they could still buy things, to keep the profitable companies profitable,. they could take the remainder of those peoples earnings as interest..
        Then they found people, who still had to buy to survive, borrowing to survive on inadequate wages.
        And then they found they could fire pretend money around and take even more off the people who actually made useful things.
        The people who made useful things gave up.
        Until the whole thing fell apart, and they mortgaged the labour of the makers of useful things, for the foreseeable future to make sure they kept the wealth.

  8. ianmac 8

    ts: “Firms lay off staff at the beginning of the recession and are forced to find more efficient methods.”
    But I thought that the private sector was so efficient that they were better than than the State. Are you saying that they are not already running at peak efficiency in spite of the downturn over the last few years of economic failure?

    • Pascal's bookie 8.1

      And I seem to recall that one of the first things this government did was to get some mates in to run over the govt sector and report to English where all the fat was. I also seem to remember that they didn’t find much.

    • tsmithfield 8.2

      “But I thought that the private sector was so efficient that they were better than than the State. Are you saying that they are not already running at peak efficiency in spite of the downturn over the last few years of economic failure?”

      More efficient on average, not perfectly efficient. This is because the private sector is more directly exposed to the consequences of its actions. For instance, pissing off customers will put you out of business. However, if you are a clerk in the court etc, then who gives a fuck about how “customers” are treated. After all its the only game in town.

      • RedLogix 8.2.1

        In my observation over many decades in both the public and private sectors (mainly private)… people and their performance are about the same everywhere.

        While it is true that private enterprise has different drivers to the public sector, and the yardsticks you would measure them by are certainly not the same… the end result in terms of ‘efficiency’ is really not a lot different.

      • Colonial Viper 8.2.2

        Stop pissing around with this word “efficient”

        Its a bullshit term.

        Its more efficient to get rid of people.

        Its more efficient to pay the ones you keep less.

        Its more efficient to take away their benefits and their holidays.

        Its more efficient to make them work longer hours and pay them nothing more.

        Its more efficient if they get tired or sick, that you can fire them with no recourse and hire someone new.

        Yeah yeah yeah more efficient for whom is what we should be asking.

        For major shareholders and the executive suite, maybe.

        For instance, pissing off customers will put you out of business.

        yeah, wrong.

        • RedLogix 8.2.2.1

          Furthermore, ‘efficient’ often means lacking in redundancy and the ability to cope with changed circumstances or crisis. Such systems are innately fragile… rather like nuclear reactors…wonderful unless something goes wrong.

          Which it always does.

          • Colonial Viper 8.2.2.1.1

            Ah now we turn on to the subject of resilient systems, which you know all about RL

            Multiple redundancies, backups, error correction, fail safe and idiot proof. Well…as much as you can :)

            Look to mother nature.

            Almost no one would notice losing half a litre of blood. You can donate that much easy as pie with no ill effects. The body could just forego making so much blood to start with, for an easy 10% savings on materials and energy.

            It’s completely inefficient to provide 5 fingers and 5 toes per hand and foot.

            People get by fine on just 4 (sure you’ll want to keep the thumb), shit that’s a 20% saving right there.

            You can keep chewing fine even with 1/4 of your teeth missing, wow that’s a 25% saving to be had asap!

            And what is it with TWO kidneys! I can’t even imagine the metabolic cost of building a second, unnecessary, wasteful kidney. Hawk it off for a huge 50% saving!!!

            Fact of the matter is, mother nature knows about resilient systems, ones which are “inefficient” to our oh-so clever analytical way of thinking, but which actually have built in redundancies and reserves for when the shit hits the fan in a big way. We should learn more from her.

      • Pascal's bookie 8.2.3

        smitty, I’ll let you in on a little non-secret.

        Politicians are highly motivated to have an efficient public service. Every dollar wasted is a dollar politicians have had to tax that they can’t spend on something else. If you pay very close attention to political news stories, by which I mean to say, read some, you will find that this dynamic accounts for a hell of a lot of what the political discourse, is.

      • Armchair Critic 8.2.4

        The thing about public services is that their main goal should not be efficiency.
        Democracy should be democratic before it is efficient.
        Justice should be just before it is efficient.
        Water should be potable before it is efficient.
        Education should be effective before it is efficient.
        Sure, efficiency fits in the equation, but focussing on it before all other outcomes really misses the point.

        • Lanthanide 8.2.4.1

          There was a comment on slashdot today that pretty much mirrors your sentiments, except for code:

          1. Make it work
          2. Make it work correctly
          3. Make it work fast

          • Armchair Critic 8.2.4.1.1

            Hmm, yes, mostly I’d agree, that’s a nice way of putting it.
            I’d note that faster is not always better. Justice, for example, needs to be properly paced.

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