I have spent a large chunk of the this week digging my way into Labour’s fiscal plan after the Liu smear collapsed. I think that the fiscal plan is a work of art, and very classy art at that. Of course you have to read it closely and look at what it is intended to do.
Brian Fallow, economics editor at the Herald seems to like it as well. His analysis is a lot better than mine, so read that first. I’ll quote some interesting bits and add some commentary.
But first the boring bit. Labour and National are going to do roughly the same surplus and debt levels via different mechanisms. Labour will wind up with more debt, but also more assets than National would.
The plan balances between doing the things that have to be done for the long-term good of society with the need to not make the business community to go apeshit with shock the way that they did in 2000. Not that they needed to then, and definitely not now.
Fallow on Labour and National budgets
There are important differences, of course, but the similarities are striking.
Both are committed to running surpluses and paying down debt. Over the three years 2015/16 to 2017/18 inclusive they both forecast operating surpluses which are almost identical.
The debt target Labour focuses on is net debt including the assets of the New Zealand Superannuation Fund, to which it would resume contributions four years earlier than National.
So it borrows more but has a corresponding increase on the asset side of the Crown’s balance sheet.
This measure of net debt would fall from 15 per cent of gross domestic product now to 12.1 per cent in 2017/18 and 3 per cent three years later, compared with 11.8 per cent and 3.7 per cent projected in Budget 2014.
And in a welcome exercise in transparency Labour commits two-thirds of that allowance, an extra $1 billion a year, to health and education in order to preserve the real value of spending in those areas.
What is actually said about it was
Labour is putting aside $1 billion (rising with inflation) each year to meet these cost pressures in health, education, and other public services. This is a commitment of a billion dollars of additional funding each year so that the public services families will rely on won’t be squeezed by inflation and demographic change.
This is the first time that any government has allocated money in future Budgets, guaranteeing to maintain the real level of spending in vital services.
It also means that when we announce new policies in these areas it will genuinely be an additional investment, not a cost adjustment in disguise.
So why is this ring-fencing needed? To me it appears that much of what National will waste money on is unproductive “Roads of National Significance”. That appears to be mostly concerned with National’s donors.
In the meantime we have a rapidly aging population as pretty apparent from this chart (from wiki NZ).
Essentially the need of people for health care goes up exponentially over the age of 50 (something I can testify to). We currently have and will have more people over the age of 50. So why is the real budget for health falling? Tony Ryall would probably argue that it is due to productivity gains. However people that I talk to in the health sector mostly say (privately) that it is reduced productivity in terms of patient outcomes as they scratch around trying to keep people healthy and productive despite the real cuts to the health budgets.
So why is education in the ring-fenced area as well? Well if you have more elderly people using more healthcare, then you have to pay for it somehow. We will have less taxpayers in the future, so for the sake of our elderly, our future taxpayers will need to be more productive if we want to be able to maintain the healthcare levels similar to we have at present.
So how do you get them more productive? You train them how to think, learn, and be more adaptable than their parents and grandparents. Nice when you see all those bits of the plan locking together.