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National’s Spending Cap Bill

Written By: - Date published: 12:13 pm, December 6th, 2011 - 11 comments
Categories: debt / deficit, public services - Tags: , ,

National will pass a Spending Cap Bill, under the cover of its Confidence and Supply deal with John Banks. The question isn’t if this Bill is a farcical idea that would hurt NZ if ever enforced (which it wouldn’t be) – even the arch-neoliberals in Treasury oppose it. The question is why National has no better ideas for Parliament’s precious time.

This guest post by Bright Red a few months back spells how a spending cap law that works would spell huge spending cuts. Basically, many major costs to the government (health and super in particular) rise faster than inflation+population growth because of the way pensions are set, how demographic pressures, and high health sector inflation. Which means that, under a spending cap, either those services would have to be slashed or other ones would be. And that’s the fevered dream of the Right, of course – to shrink the services the government provides so that they can have more tax cuts.

So, spending caps are bad law. It’s particularly laughable that National would be proposing a spending cap because they have increased government spending from 31.1% of GDP to 35.2% while cutting revenue from 33.7% to 28.7%, opening up the largest deficit in New Zealand history.
And Treasury was quite clear in its advice to the government that a) spending caps don’t work because they just get bypassed and b) they wouldn’t be desireable if they did work:

any spending rule that is not perceived as serving the interest of the Government and Parliament will inevitably be circumvented, and that “in the absence of this widespread political support, it is doubtful that the legislative status of a spending rule will have any impact on actual policy formulation”. Without widespread political support a government could overturn the rule by amending the legislation – potentially raising the prospect of ongoing changes to what has been a stable and enduring the fiscal framework with a high degree of cross party support.

The spending cap and the results of any referenda will bind the government only to the extent that Parliament continues to agree to remain within these constraints. A future Parliament has the ability to amend the level and/or operation of the expenditure cap or to repeal it outright.

Empirical analysis of the Taxpayer Bill of Rights (TABOR) in Colorado suggests that the combination of a cap on expenses and revenue and a referendum mechanism was successful in reducing the size and scope of Colorado’s state government relative to its economy. However, that analysis also suggests that the reductions in tax and spending generated by the TABOR did not have a positive effect on Colorado’s economy, in part because Colorado reduced relatively high value areas of spending, including education and infrastructure.

However, lower levels of expenses and revenue may also force reductions in the direct delivery of public services and will create incentives for governments to find other ways to deliver their objectives. This could result in greater use of tax concessions, regulation, activities funded by fees or levies, local government, state-owned enterprises, and/or public private partnerships or other forms of contracts to achieve these objectives. All of these approaches can impose relatively higher compliance burdens on individuals and businesses to achieve similar outcomes, relative to expenditure programmes.

The Treasury does not support imposing constraints on the ability of the government to set fiscal strategy via hard parameters in legislation. A legislated spending rule, which a government did not wish to be bound by, could lead to efforts to circumvent the rule – potentially favouring certain types of decisions (e.g. tax expenditures or regulatory changes) and raising the risk of unintended or perverse outcomes.

To be effective, the fiscal framework needs to be reasonably stable over time. This criterion would not be met if a legislated spending rule was likely to be overturned, shortly after its introduction, because it lacked widespread and enduring political support.

In other words, “this is a silly idea – an expensive waste of time – that will be ignored, circumvented, or repealed by the first government – Left or Right – that needs to”. Apparently, Japan has a spending limit written into its post-WW2 constitution, and Parliament has passed an exemption to it as part of the Budget every single year.

So, the real question isn’t why National is seeking to pass a spending cap law. It may as well be seeking to pass a The Moon is Made of Blue Cheese Bill for all the practical effect it will have. It is really just a red herring designed to get the Left all up in arms and let National paint itself as a responsible, restrained government.

The question is, why, in the midst of high unemployment, rising poverty, and ongoing economic and environmental crisis, does National have no better ideas for Parliament’s time than a petty political play?

11 comments on “National’s Spending Cap Bill”

  1. Dr Terry 1

    The government does such things because it can rely on the gullibility of so many New Zealanders.

  2. Zaphod Beeblebrox 2

    Nice bit of inter-generational theft going on there. Pay for tax cuts for the rich by hacking into the future returns of the super fund. If I were under 40, I would be seriously pissed off.

    • Ari 2.1

      The inter-generational theft is that we have an incredibly generous pension program, tax cuts for the rich who haven’t yet retired, yet young people right now have an incredibly ballooning total of student (and credit card…) debt, and nobody is willing to change NZ Super so that it will still be around by the time we’ll need it.

      We should absolutely address the problems with NZ Super- but we should do that by making payments compulsory and means-testing it.

  3. tc 3

    Just biding time till the national cycleway panda taecupgate enablement act is up .

  4. Bunji 4

    Keith Ng has a great post on the Spending Cap. Worth a read.

  5. Draco T Bastard 5

    …does National have no better ideas for Parliament’s time than a petty political play?

    It helps distract from the theft of NZs wealth that they’re orchestrating.

  6. mike 6

    This is what we’ve come to. Passing rubbish purely for political propaganda.

  7. Hanswurst 7

    Labour need to oppose this bill visibly, constantly and vociferously throughout this parliamentary term, icluding if and when it is enacted into law. They need to have it thoroughly discredited, or at least have a strong narrative built up around its repeal well before the election campaign, otherwise their opposition to it will be an easy concrete target for National on which to hang their attack lines that “Labour just wants unlimited freedom to take NZers’ money and spend it on their pet projects like policy XYZ.”

    That has to be a big part of why National really want this law; it’s a stick to beat future or prospective governments with if they promise or choose to repeal it or raise the limit. They’ll be guessing that it’s most likely to be a Labour government that first has the necessity or inclination to do this. 

  8. Colonial Viper 8

    John Banks, the 1% fossilised tail wagging around the weak gutless supposedly Right Wing hide-behind-ACT John Key.

  9. randal 9

    what is happening here is that the wonks in the act orbit have been reading all this material from the right wing loonies in the USA and now they are trying it on here.
    they are totally bereft of ideas except killing democracy by hamstringing parliament.
    this country gets crummier and crummier by the day.

  10. anne 10

    A spending cap bill! ,key, english and national know nothing about restraint in austerity,because
    it only applies to those who are not surrounded by a honey pot of wealth.
    Key in all his rant about tightining belts,money is in short supply,but hey, key can find $500 grand
    to give to a millionaires golf game for key’s affluent buddies to have 18 rounds,while salvation army are on the news concerned the amount of people in despair,while all social agencies are
    feeling the pinch because they are helping people living in poverty,if key thinks the finances of
    NZ are strained then he shows no thought whatsoever for the people or the agencies who are
    at the coal face,by handing out tax payers money to mates to play 18 rounds.
    English also helped his buddies in the scf fiasco,what he did was use his political powers,warned
    by treasury he wasn’t acting under the terms and conditions of the retail deposit scheme,so what did he do? changed the terms and conditions to allow scf investors into the scheme, he called a meeting with the investors and told them they now had the benefit of a crown guarantee,a rush on deposits and english sat on his hands, now what would we call that ?costing tax payers 2billion,but what is also dispicable here is that in parliament english and key continually blamed labour and clark for the retail deposit scheme,when in fact key and english were knee deep in the conspiracy of fraud.
    So does key,english or national know anything about fiscal control, except help out their buddies,business mates etc,NO,tax payers money is their money to do what they please,if it
    pleases them.
    They both need to be held accountable for the waste of tax payers money.

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