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Govt spending – the big lie

Written By: - Date published: 3:30 pm, December 10th, 2009 - 44 comments
Categories: bill english, labour, public services - Tags:

govt-spending--GDPI’m kind of embarrassed. I should know by now never to trust a word out of Bill English’s mouth. I should have checked his repeated claims that government spending rocketed under Labour.

English likes to say that because of Labour government spending increased by 45% over the five years from 2004 to 2009. As David Cunliffe has pointed out there’s several things wrong with that: it’s not inflation-adjusted, it’s not population growth-adjusted, it’s not GDP growth-adjusted, and the years are cherry-picked. When you look at the last ten years of spending as a percentage of GDP, you get a very different picture from what English wants you to believe.

Let’s look at what actually happened to government spending (here and here) compared to GDP (here). There was one really low year, 2004, because GDP jumped by $10 billion a year that year. Otherwise it was pretty flat until the recession in 2009.

Another government lie shot to pieces. Now, we have to think about what’s behind the lie. It’s an agenda to slash and burn public services. Budget 2010 is going to be ugly.

44 comments on “Govt spending – the big lie”

  1. gitmo 1

    To save people the trouble here’s the crown core expenses 97/98 through to projected 2009

    32,852
    34,367
    34,536
    36,699
    37,970
    41,234
    41,738
    43,292
    45,031
    46,594
    41,882 – 2004
    44,895
    49,320
    54,003
    56,997
    62,363

    • Bright Red 1.1

      gitmo, those numbers aren’t inflation adjusted are they?

      or population adjusted?

      or GDP adjusted?

      You do understand that nominal values are pretty much random doodles on the screen without context, eh?

      I mean, if you go back to 1976, the government was spending $3.6 billion a year – holy crap! government spending up 1600% in 33 years!

      but, oh, with inflation that’s $28 billion in today’s money a 125% increase.

      oh yeah and the population has increased 39%, so real spending per person is up only 56%.

      And then there’s GDP growth… turns out that in 1976 government spending was spending 30.8% of GDP. Pretty much what it is now.

      See how context changes things, gitmo?

      I bet you don’t.

      • ben 1.1.1

        Red, over a four year period the nominal vs real difference is unimportant. And, coming back to Marty’s post, what English actually said is perfectly accurate. Calling it a lie because another metric serves his purpose more closely is absurd. Recognising reasonable people will disagree might be a more mature response.

        • Bright Red 1.1.1.1

          over a four year period the difference is clearly important because govt spend as percent of GDP is steady except for the peak of growth in 2004 and the recession.

          • ben 1.1.1.1.1

            And now you’re just shifting goal posts. First you wanted real. Now you want % of GDP. Which, by the way, has nothing to do with whether the government was lying.

            All the metrics point up. It was perfectly clear which metric English was using. What he said was accurate. Where is the lie, exactly?

      • gitmo 1.1.2

        Um are you a complete fucktard ?

        hmmm bet you are.

        English’s comment was that spending increased 45% between 04 and 09 this is a statement of fact.

        Should we take into account population growth and inflation into account when discussing whether that’s a good thing or a bad thing mmmmmm yes, is the growth in spending still ugly and unsustainable even if one takes into account these two factors….yep.

        I suggest you go and pull on your random doodle and spunk all over your keyboard…. better still sacrifice yourself to the polar bears that haven’t got enough to eat.

        [lprent: Careful. I had people all over me when I suggested that someones suicide would improve the species. I like to share my aggravation. ]

        • felix 1.1.2.1

          is the growth in spending still ugly and unsustainable even if one takes into account these two factors .

          The growth in spending isn’t anywhere near 45% when those factors are taken into account.

          I realise you’re probably pretty smashed by now but the point you’re failing to grasp is not a complicated one.

          If you are to insist that the growth in spending is “ugly and unsustainable” then perhaps you could tell us the size of this unsustainable ugliness.

          If you can’t then I hardly see how you can make the claim.

          • gitmo 1.1.2.1.1

            “If you are to insist that the growth in spending is “ugly and unsustainable’ then perhaps you could tell us the size of this unsustainable ugliness.”

            250 mil a week

            ps hic and belch

          • ben 1.1.2.1.2

            The growth in spending isn’t anywhere near 45% when those factors are taken into account.

            But leaving out those factors doesn’t make what English said untrue. What he said was accurate. And, actually, not even misleading. Has the government paid out 45% more or not? So where is the lie?

            What’s especially egregious about all this that Marty has in the past himself managed to confuse real and nominal variables, on interest rates between 1980 and today, back when inflation was running at up to 20%. What’s the word I’m looking for… chutzpah.

            • felix 1.1.2.1.2.1

              And that relates to my reply to gitmo how exactly?

              I don’t recall commenting on Mr English’s truthfulness, just gitmo’s grip on the day.

              Or are you stuck in some sort of loop where you can’t stop typing the same thing over and over until someone gives you some attention?

        • roger nome 1.1.2.2

          gitmo – you’re being a nob. English was being misleading, and you know it.

  2. ben 2

    It’s not a lie Marty, and it’s not even especially misleading. English’s wording accurately described the metric he was using. Did government spending go up 45% in absolute terms or not?

    Reasonable people will disagree about the appropriate measure of government spending – but calling it a lie because he uses a measure you wouldn’t is over the top and, frankly, untrue.

    • Lanthanide 2.1

      I guess you’re from the school of thought that says a wage freeze isn’t actually a pay cut because you the number of dollars you get paid didn’t decrease.

      • ben 2.1.1

        I get the difference between real and nominal.

        English’s wording accurately described the metric he was using. Did government spending go up 45% in absolute terms or not? Fine to argue another metric is better – but a lie? Nope.

    • Bright Red 2.2

      ben. You mean nominal terms, not absolute terms.

      Nominal is meaningless.

      In Zimbabwe hyperinflation meant that nominal hourly wages went from a few dollars an hour to hundreds of thousnds of dollars an hour. Were they richer? No. That’s because nominal changes are meaningless, they’re just numbers on pieces of paper, not consistant measures of real value over time.

      • ben 2.2.1

        Yeah I get the difference. As I said, reasonable people will disagree about the right metric. Nominal is not meaningless in a low inflation economy – it captures over 90% of the real variable in this case. Calling what English said a lie is completely over the top.

        • Bright Red 2.2.1.1

          you’re also ignoring population and gdp growth.

          • Bright Red 2.2.1.1.1

            and by comparing 2004 to 2009 you’re cherry-picking – the height of the boom vs the depths of recession.

            • ben 2.2.1.1.1.1

              Dude – I am comparing absolutely nothing. And you are shifting goal posts. What English said was correct, and it was clear what he was saying. Calling what he said a lie is simply false. In fact, it is itself a lie.

  3. Lanthanide 3

    Does the “government spending” figure also include money that was used to pay off debt? Or should that figure be added onto the “government spending” figure?

    Either way, as much as Blinglish likes to bleet on about it, even if core government spending increased, they still also paid down debt, resulting in lower interest payments into the future.

    • lprent 3.1

      Same question – does that ‘spending’ include money invested in the cullen fund?

      Usually a half to a whole billion per year.

      • Lanthanide 3.1.1

        Good point.

        You could even throw in Kiwisaver contributions as well, which in particular would make the current numbers a bit better. That’s a bit dicey though, because while the cullen fund has a track record of out-performing, kiwisaver performance has been a lot spottier, so the government might not be getting good value for money from that ‘spend’. It starts to become a slippery slope though – are you also going to start discounting health and education spending because they have net positives in the future from a healthier/more educated workforce, etc.

  4. ghostwhowalksnz 4

    Does putting money in the Cullen Fund count as ‘spending’.?
    Does Working for Familes count as spending when its an ongoing tax credit?
    Does subsidies for Kiwisaver count as spending?

    And then theres ACC ‘levies’. They are paid into a pool for medical & wage insurance but do they count as income for the government. Yes, the non earners paid for by the govt is spending

  5. Homo Domesticus 5

    What do you expect? Corrupt English is clueless, except when it comes to enriching himself from the public purse. He and most other ministers, including the donKey have no idea how to fix the economy. Presently, they are doing little and hoping that the world economy will pick up and drag us out of recession. That approach has largely worked up to now but I believe worst is to come in 2010 when many more businesses will hit the wall and unemployment will soar.

    What will English do to address this? Does he care?

    Homo d.

  6. felix 6

    ben you’re such a weak apologist. Try studying how Tim “Ellis in Wonderland” does it – it’s all about subtly changing the subject and hoping no-one notices.

    • ben 6.1

      I apologise for no one Felix, certainly not Bill English. My only point is that Marty is writing total over the top BS at almost every oppportunity. I’d call him on it just the same if he ever has the balls to accuse anyone in Labour of the same thing.

      • felix 6.1.1

        So it’s the title of the post that has upset you so?

        • ben 6.1.1.1

          Just that and most of the body text. Other than that, all good.

          • felix 6.1.1.1.1

            I just checked the text and I can see why you might not like the last paragraph but I can’t understand what bothers you about the rest of it.

            Seems accurate to me – could you show where it’s wrong?

  7. Jim McDonald 7

    Hmm, your piece reminds me of the saying … which can be paraphrased here … there are lies, damned lies and DD’s statistics.

    Funtastic!

    Is this an example of bringing one’s personal skills to public office and rearranging facts and figures to bolster one’s case for the budget that will be unveiled?

  8. Boris Clarkov 8

    “If you stand on your head and squint, you’ll see that the Clark regime didn’t flush all of the wealth they overtaxed from us down the welfare toilet! We’re all actually prosperous!”

    • Bright Red 8.1

      well, GDP per capita increased by 18% in real terms from 1999 to 2009, so yeah, we’re a lot richer per person than we were.

      And people who were on the $7 minimum wage or one of the 10% unemployed under National were a lot better off with the minimum wage up to $12 an hour and unemployment down to 3.5% under Labour.

      Come on Boris, what actually facts have you got to throw back… or is it just the bluster of a confused and angry old drunk?

  9. tsmithfield 9

    If we compare this from the point of view of a company, our admin expenses have ranged from 290k to 330k over the last five years. Yet our gross sales have ranged from 1.5mil to 2.2 mil. So, as our sales have gone up, expenses have not gone up proportionally.

    So, as a percentage our admin costs have fallen from 19.3% to 15%.

    Thus, factors such as population etc will increase the costs somewhat, but it is incorrect to assume a straight-line relationship between Government spending and GDP. The increase in costs should be substantially less than the increase in GDP. Thus, on a percentage basis, there should be a percentage decline as GDP increases.

    So far as inflation is concerned, that has been very low over recent years. We also need to consider the impact of the NZ dollar on costs the government must fund. Over recent years the dollar has strengthened considerably, reducing a number of the costs the government must fund. Therefore, the inflation argument might not be as strong as you think.

    • Bright Red 9.1

      the govt isn’t a company. it’s society’s expression of social power, tasked with providing things of social value. It is so large that it’s spending and revenue choices simply cannot be compared to a business – if it cuts spending when revenue goes down it deepens recessions.

      so that’s pretty much that analogy shot.

  10. BLiP 10

    Blinglish must be suffering memory loss – its just a year ago he was praising Labour for leaving the country in such good shape in the face of an economic depression. Unless . . . unless . . . he was lying in the House yesterday?

  11. tsmithfield 11

    Bright Red “the govt isn’t a company. it’s society’s expression of social power, tasked with providing things of social value. It is so large that it’s spending and revenue choices simply cannot be compared to a business” if it cuts spending when revenue goes down it deepens recessions.”

    Sorry, Red, but in many ways the Government does have many parallels to a company.

    The argument being made, as I understand it, is that as GDP goes up, government spending will increase as well. Thus, the argument being made here is that Labour’s spending figures are being misrepresented.

    However, it seems to me that Government expenditure should decrease in percentage terms, and perhaps even in nominal terms, when GDP increases. This is because, as GDP increases, it is reasonable to assume that resources are being used more efficiently. Thus, unemployment will probably be lower, and people will need less state support.

    Thus, on this basis, there seems to be little basis to argue that increasing GDP is an excuse for increased government expenditure.

    • Marty G 11.1

      oh jesus. Not the ‘the government is like a big company’ thing again.

      It’s 30% of the economy, ts, and tha’ts just the core Crown not including local government and SOEs. That means it has macroeconomic effects on a scale no company can come near.

      of course spending goes up with GDP. You want more spending on roads and transport don’t you? You don’t think healthcare is as good as it could possibly be do you? How about education? Crime? People want to government to do more – as the capacity of the economy increases, so does government spending.

      But you will notice that when growth was at its strongest, govt spending/GDP was falling, because govt spending was growing as fast. That’s good fiscal policy – don’t pour fuel on a hot economy, but spend when the economy is in to doldrums, like now.

  12. tsmithfield 12

    Marty “of course spending goes up with GDP. You want more spending on roads and transport don’t you? You don’t think healthcare is as good as it could possibly be do you? How about education? Crime? People want to government to do more as the capacity of the economy increases, so does government spending.”

    You have pointed out a very good parallel between government and business, Marty. A company that sets its cost structure for optimal business conditions is likely to suffer or fail if business conditions deteriorate. In a similar way, a government that sets its cost structure for the best economic environment in decades, as the last government had, is likewise going to run into major problems when those conditions suddenly change.

    The current government is simply trying to adjust expenditure to match the new environment. IMO they could be going a lot further.

    If we are not careful we could end up like Greece:

    http://www.ft.com/cms/s/0/8de7393a-e399-11de-9f4f-00144feab49a.html

    • Pascal's bookie 12.1

      In a similar way, a government that sets its cost structure for the best economic environment in decades, as the last government had, is likewise going to run into major problems when those conditions suddenly change.

      But they didn’t set their ‘cost structure’ for the best economic environment in decades. At least not in the way that you imply. They paid back lots of debt for one thing. That was setting their cost structure for the best economic environment in decades. Obviously when the economic environement changes, they, ta da, change their ‘cost structure.

      There isn’t some optimum setting that will best suit conditions for any given economic climate. When the economy nose dives, private sector demand dries up, if it’s a global crisis, demand from exports dry up. That only leaves the govt. If they dry up, it’s spirals downward a go go. The task of govt during the good times is to make sure they are in a position to take up that slack. Which is nothing like a private business at all.

      If during the good times, a govt treated surpluses as ‘overtaxation’ and cut taxes blithely assuming that debt can be carried at similar levels to what a private sector company might find prudent, as some (cough brash cough) would have had us do, that’s when you get in the poo.

    • blacksand 12.2

      If we are not careful we could end up like Greece

      well if Brash’d had his way (2005, or of course now…) we might well have ended up like Ireland and Iceland, the darlings of the right only a couple of years ago… Wasn’t Brashes plan to cut taxes and borrow while the things are good? Wasn’t Key’s line that he’d be pretty much like Brash just with a different tone. Then wasn’t it pretty much like Labour, but with a different tone…

  13. tsmithfield 13

    Pascals Bookie “Obviously when the economic environement changes, they, ta da, change their ‘cost structure’.”

    Which is what the current government is trying to do without impacting on benefits etc. Hence, the only way left to bring expenditure under control is to look to reduce the size of government.

    I agree that the previous government managed to repay debt. But they could have done a lot more given the boom time they functioned in. When times are easy, it is possible to have lots of fat and get away with it. However, obviously, the level of previous expenditure is unsustainable given the new environment.

    What will result is similar to what has happened with many companies. They are forced to cut deep, and eliminate any waste or low priority expenditure. When growth resumes, companies that have taken these hard steps find themselves much more profitable. It will be the same with the current government if they prune expenditure sufficiently.

    Sure NZ has a low debt level at the moment. However, I can tell you, that from my business experience, the fixed costs will kill you very quickly if the income isn’t sufficient to cover them. It will be the same for NZ if we continue to run huge deficits.

    Take a look at Greece, as I mentioned earlier.

    • Pascal's bookie 13.1

      Firstly, you failed to address most of my comment. The demand stuff in particular. the govt plays a role in the economy that the private sector simply can’t emulate. If the govt ignores this potential role, they miss out on a vary important potential tool.

      Secondly, govts aren’t established in order to be profitable, it’s not their reason for being. A fairly good precis of what they are for can be found in the US Declaration of Independence. I don’t think profitability even makes sense when talking about a govt. that’s why I think the analogy to a company fails most obviously, but I can accept that we may have to agree to differ.

      Thirdly, govts simply don’t face the same market pressures as companies do. Their creditors are a lot more forgiving for one thing as they know that govts can tax etc. There is no indication that our creditors are worried. The threatened downgrade didn’t eventuate, and the guy I heard after the budget from the sole credit rating co that was concerned, said his fears were allayed when the tax cuts were cancelled, (nothing to do with the cullen fund holiday).

    • blacksand 13.2

      When times are easy, it is possible to have lots of fat and get away with it

      and remind us how much fat English’s special taskforce found? Good lord, John Key’s already blown the previous record hip-hop tour budget.

  14. tsmithfield 14

    Its probably not surprising that we see things quite differently, although I appreciate your point of view.

    My perspective is that the reason for government should be to provide services that are not economical or possible to provide on an individual basis (e.g. hospitals, roads etc), maintain law and order, and foster international relations. Other than that, I don’t really see much further use or point of government.

    Given that perspective, its probably not surprising that we tend to disagree.

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