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Minima

Written By: - Date published: 11:00 am, May 27th, 2009 - 24 comments
Categories: budget 2009 - Tags:

One of the oldest tricks in the book for a government that’s cutting public services is to say ‘we’re not cutting, we’re spending more in our budget than ever before’ while not mentioning that their spending ‘increase’ doesn’t match inflation and population growth.

We need to know what constitutes minimum increases to preserve current services:

  • $750 million for health. This was the basic increase for the last few years under Labour and National pledge to keep it. Sounds like a lot but the health budget is $11 billion and inflation in the sector is high. Most of the $750 million is just to cover inflation. Most of the rest is to cover population increase and demographic shift (older population, more health demand per person). Any actual increase has to be additional to the $750 million. If not all of the $750 million is there, it’s a spending cut.
  • Education. Same as Health, a huge budget needs a big increase just to maintain the status quo. Something in the range of $500 million. If it’s not all there, services will have to be cut.
  • Social welfare. The demand for the unemployment benefit and superannuation are going up fast. The extra funding will definitely be there for this. Unless National breaks its promises and cuts welfare.
  • That’s the big stuff but there’s plenty of smaller budgets too that provide important services. In each of them, the minimum increase needed is about 4% just to offset inflation and population growth.

Another classic trick to watch for is to close down one programme, start another that costs the same or less and call it new spending. The question with these spending changes is whether the new spending programme is better than the previous one.

This government, for instance, has decided it needs to prioritise elective surgery. In opposition they turned the number of electives the be all and end all of the health system’s performance (in fact it’s only a few percent of what it does). Now they want to show success by increasing the number of electives but they want to do it without more money for health. Solution: close down primary health care programmes and plough the money into electives. It’s a bit like skimping on fencing at the top of the cliff so you can afford a better ambulance.

Paula Bennett looks like she’s trying the same trick with funding for social services NGOs.

The message here is don’t take the government’s spin at face value. Ask is this ‘increase’ really an increase and is there a hidden cut?
– Marty G

24 comments on “Minima ”

  1. Mark M 1

    The cost plus mentality that requires large annual spending increases, is over.
    No tax payer wants to be saddled with more debt each year to cover the over exuberance of Finance ministers past or present.

    Spending more money than you earn has consequences.

  2. ghostwhowalks 2

    The classic one dates back to Ruth Ricardsons ‘mother of all budgets’.
    The she moved about 1 billion that was spent on disabled services ( such as CCS ) from the Social Welfare budget where they been for decades to the health budget.

    So she got credit from the right for ‘slashing welfare’ AND spending ‘more’ on health and it was all an accounting trick. Of course actual benefits were heavily cut as well.

  3. tsmithfield 3

    I thought there would be some applause for the Government listening to the Greens and including the insulation package.

    I think this is actually a very good idea and commend the Greens for initiating this one. It not only will have a stimulatory effect on the economy, but will also probably pay for itself in terms of reduced requirement of electricity production; e.g. it might mean not having to spend on new dam, coal generator, or the like.

    • Tigger 3.1

      tsmith – really, a good idea? So our two person household that earns over half a million between us can get the subsidy? Our house is terribly insulated. So are the three new rentals we just bought. That’s where my tax dollars are going – so people like me who can afford to do this themselves get a repayment?

      I’m all for the idea – but come on, at least put an upper limit on who can claim it.

      Next up – free housing for millionaires and the dole for people in full time employment…

      All that said, we’re going to tap into this. And give the money we save to the Labour Party.

      • gingercrush 3.1.1

        Yes but as you own rentals, you won’t have half your people on the left call you landlord slum. As for some reason, anyone owning rental properties are somehow slummish.

        • Zaphod Beeblebrox 3.1.1.1

          everybody benefits- tenants pay less for heating, landlord gets increased value, less greenhouse gas gets used, kids grow up in healthier home, builders get employment. No matter whose idea it is, its undeniably good.

      • Con 3.1.2

        Our house is terribly insulated. So are the three new rentals we just bought. That’s where my tax dollars are going – so people like me who can afford to do this themselves get a repayment?

        Maybe you could afford to … but you hadn’t done so. If this means you actually get it done, then isn’t that a good thing?

        All that said, we’re going to tap into this. And give the money we save to the Labour Party.

        Fair’s fair – you should give it to the Greens, surely? 😉

        • Pat 3.1.2.1

          “So our two person household that earns over half a million between us can get the subsidy? Our house is terribly insulated. So are the three new rentals we just bought.”

          “Screw the property traders (see them in the paper already trying to create the next bubble). Capital gains will stop overinvestment into housing as well as keep debt under control. Oh, and raise taxes for the richest few percent like they did in the UK.”

          Tigger, meet Zeletic.

  4. gingercrush 4

    No doubt there will be plenty of spin from Goff himself who will literally moan and moan and moan. He’ll complain about all spending cuts. He’ll complain about nothing going far enough and he’ll complain that there isn’t enough spending. Phil Goff of course lives in a fantasy land where debt hasn’t literally doubled and where we aren’t looking at a few good years of deficits.

    Of course this blog and the left in general will try and portray this as being a black budget. It won’t be a great budget and I am sure there will be plenty of legitimate criticisms. But it sure won’t be a black budget.

    • Lanthanide 4.1

      Lets conveniently forget the tax cuts “north of $50” that are now going to be “postponed” (read: cancelled), one of the big tickets National used to drum themselves into the Beehive.

      captcha: the typhoid

      • gingercrush 4.1.1

        True. But going by this website. You would think Labour is incapable of spinning things. Economic conditions are very different from the budget of last year to the budget this year. Even the tax cuts announced during the election were considerably downgraded to what they were originally going to be. The idea that National hadn’t considered the economic conditions is untrue. Forecasts were still ok during the election. Its been since the election that the forecasts have gotten considerably worse.

  5. Lanthanide 5

    Which is the very difference between Cullen and National. Even during the boom years Cullen always thought things could get worse, and prepared for it.

    National would have known that things could easily get worse than they were forecast to, and knew they could use that as an excuse to cut their extravagant tax cuts later when required – “oh, we didn’t expect it to get this bad, sorry they have to go”. A more fiscally prudent government wouldn’t have promised such large cuts when the future was so murky.

    True, Labour may have needed to drop or scale back their tax cuts proposed for 2010 and 2011 as well, but I guess we’ll never know what would have happened if Labour had got into power. It’s quite possible their mini-budget before Christmas could have helped stem the job losses and improved tax revenue for the foreseeable future, thus improving the books and keeping their cuts, although lower than those proposed by National, affordable. I think where Labour really miss-stepped was by bringing the cuts forward to October, and then having nothing in April of this year, so on a simplistic comparison National were offering money in the pocket in 2009 whereas Labour wasn’t. For electioneering purposes Labour would have been better off having cuts in 08, 09 and 10 and nothing for 11.

    • gingercrush 5.1

      Oh please. Cullen paid off debt and produced surpluses. Big deal. One would think by the way the left acts that National never did this. That is wrong. National in the nineties actually got debt dramatically down from the hell they inherited in 1990. They left Labour with SURPLUSES. What did National get? DEFICITS.

      Of course we’ll never know what Labour would have produced post-election. Cancelled tax cuts for one is likely. The idea that they themselves would have some grand stimulus package that would get us out of recession by now as you are suggesting is quite frankly absurd.

      The US has done two stimulus packages. How are their job numbers going? How are their economics doing?

      The British have spent substantially on stimulus packages. Is their economy any better?

      Japan has a history of stimulus packages and are once again producing stimulus packages. How are going? Their economy is contracting more than it ever has before.

      How is Europe doing?

      The only country that is similar to our own who are doing rather well would be Australia. Which unexpectedly saw their unemployment numbers go down. That is largely seen as a once off and that unemployment will go further down. Yes they had a stimulus package that may have helped their economy. But of course they only entered a recession quite recently. Whereas New Zealand and other countries entered recession far earlier (of course we were in a recession prior to this world economic downturn). Their economy is also sheltered by their mining potential. Of course despite their stimulus package their unemployment is set to track lower. Their economy is set to worsen further.

      —-

      What part of we are in a world recession do you not get?

      • Lanthanide 5.1.1

        Actually I never suggested that “they themselves would have some grand stimulus package that would get us out of recession”, I said merely that it may have stemmed the unemployment rate rising, improving tax revenue and allowing their (smaller and more sensible) tax cuts to go ahead. I never said anything about ‘ending’ the recession.

        The other countries you pointed out all have significantly different economic bases than New Zealand, and so aren’t really comparable. Also you noted that we went into the recession earlier than the other countries and as many commentators have frequently pointed out NZ’s banks are pretty safe compared to the other countries in your list, giving us a different landscape in which the correct stimulus package may have a bigger affect than in the other countries you mentioned. It’s pretty simple really – if your recession is caused by banks having huge piles of toxic debt (UK, US), you’ll need to throw billions at them before the problem starts to be controlled, but in NZ we don’t need to throw billions at our banks, instead we could throw the money at more useful endeavours.

        Several times in your post towards the bottom you talk about the unemployment rate in Oz falling, when I believe you meant to say “employment falling” or “unemployment rising”.

        Finally you say “what part of a world recession do you not get”, while earlier complaining that Labour has left National with deficits, whereas when they left office in 1999 they were leaving surpluses. You can’t have it both ways – if there is a worldwide recession (which is there is), then you can’t blame Labour for leaving the books in deficit now, instead you have to blame the worldwide recession.

        • gingercrush 5.1.1.1

          Actually National was always going to inherit a deficit. Albeit far smaller had there be no world economic downturn but nonetheless a deficit. You also seem to think you can’t compare what other countries are doing. Of course we can. How many times have we heard the rest of the world is doing stimilus packages why aren’t we. When New Zealand is acknowledge by credible world sources as already providing a stumulus into the economy. The difference is elsewhere they have borrowed and borrowed to provide stimilus whereas here we’ve borrowed less to provide stimulus.

          Also those other countries impact our export sector. Have you not noticed that just today Fonterra has put out new forecasts which are seeing a further cut to what farmers will receive. One reason New Zealand isn’t doing worse is because our farmers were doing rather well. But this will have real consequences.

          You can’t use bullshit and try and say that National spending more on stimulus would somehow make unemployment slow (when remember the last unemployment numbers that came out for New Zealand were better than expected). Of course we could have cancelled all tax cuts. Sure that would have slowed tax revenue for one year perhaps. But that would have disastorous consequences for the economy in the long term.

          —-

          The left optimistically think that simply throwing money to create jobs works. It doesn’t. The rest of the world will prove to have wasted their time on their pathetic stimulus packages. They have created debts that future generations will have to pay for. This will see inflation in a few years time dramatically rise and will see a second world recession in five years if they don’t pull in spending, reduce debt and actually get realistic.

          • Lanthanide 5.1.1.1.1

            “When New Zealand is acknowledge by credible world sources as already providing a stumulus into the economy.” Please show me these credible world sources and describe what this stimulus is. I am not saying this to be snarky, I am genuinely interested, because to my knowledge there is no new stimulus from National, merely a continuation of already-announced spending by Labour.

            “You can’t use bullshit and try and say that National spending more on stimulus would somehow make unemployment slow (when remember the last unemployment numbers that came out for New Zealand were better than expected).” It seems logical that if you spend money to prevent unemployment from rising, then the rate at which it is rising should slow, or potentially reverse, yes? I think that this statement of yours in particular is meaningless, essentially you are saying “if someone tries to spend money to do something, it is bullshit to suggest that the ‘something’ will actually happen”.

            Whether or not spending to stop job losses is cost-effective at stopping the employment rate rising is another question. The thing is, National hasn’t done anything except for a talk-fest job summit and John Key’s Memorial Cycleway which will do bugger all and take forever. If they have done something else, please enlighten me.

            “The left optimistically think that simply throwing money to create jobs works. It doesn’t.” So I guess you disagree with National when they say the insulation for NZ houses will create jobs, then? This is exactly what “spending to create jobs” means. Clearly if you divert money into activities that required someone to get paid to do them, you are creating a job for that person to do the work. That is what a job is. You know when they say they are spending 750 million on health, that a lot of that money goes into paying salaries for people to do the jobs required? If it costs 50 million to train 200 new doctors, some of that 50 million goes towards paying the salaries of the people who will train the doctors, thereby creating jobs.

            Please prove that government spending does not create jobs, as you seem to be suggesting.

            Actually I was just thinking, if anything tax cuts are the worst way to create jobs, because all you’re essentially doing is giving people more money for the jobs they are already doing. You’re not actually creating any new jobs directly at all. Sure, people have ‘more money’ to ‘spend’ on things, thereby creating jobs through economic growth, however this takes a while to trickle through the economy and is not really measurable in any meaningful way. Unfortunately National’s tax cuts have been aimed at the top income earners who are more likely to save their tax cuts than to spend it.

      • Zaphod Beeblebrox 5.1.2

        So you acknowledge we are better off than others. Surely this is not entirely due to 150 days of JK and BE?

      • ghostwhowalks 5.1.3

        What deficit? They didnt ‘inherit’ a deficit, the actual numbers were a small surplus. English is quoted as saying they will spend more than labour in their budget , so what was so terrible about the total amount . that Labour spent
        http://www.treasury.govt.nz/budget/forecasts/prefu2008/023.htm shows a small balance in the cash postion for 2008

  6. Stephen Whittington 6

    This is crazy. The figures you have suggested for increased health spending are more than Labour’s increases. Below is the health budget in millions in non-inflation adjusted terms:

    1999: 5875
    2000: 6146
    2001: 6660
    2002: 7032
    2003: 7501
    2004: 8111
    2005: 8813
    2006: 9547
    2007: 10355
    2008: 11297

    Only in two years was the increase more than you suggested (2007, 2008), and there is no way that Labour ever claimed that the massive increases were just to keep services constant. We were constantly told that health was getting better and better.

    • wtl 6.1

      Huh? From your figures these are the percent increases:
      2000: 4.6%
      2001: 8.4%
      2002: 5.6%
      2003: 6.7%
      2004: 8.1%
      2005: 8.7%
      2006: 8.3%
      2007: 8.5%
      2008: 9.1%
      A $750 million increase in 2009: would be a 6.6% increase.
      Surely you aren’t doing your calculations on the absolute increase each year?

      • Con 6.1.1

        And just to add: even though some annual increases were below 6.6%, the average annual increase between 2000 and 2008 was 7.5%.

      • Stephen Whittington 6.1.2

        I obviously was using absolute increases. That is why they become more comparable closer to now, when the increases were only marginally above $750 million.

        And equally, the rate of inflation was different for all of those years. Latter percentage increases occured contemporaneously with a jump in inflation, suggesting that post-inflatiopn increase is not so huge. Inflation is currently low, and inflation expectations are low as well.

        The idea of adjusting health spending to the level of “healthcare cost inflation” is absurd, precisely because such massive increases in healthcare spending are causing the inflation that is meant to be adjusted for.

  7. Pat 7

    “Something in the range of $500 million”

    Behold! The mathemagician pulls another figure out of his arse!

  8. Stephen Whittington 8

    In addition, I would note that Labour in fact decreased education spending in the recent years:

    Here are the figures in real terms:

    2005: 7930
    2006: 9914
    2007: 9269
    2008: 9551

    And in inflation adjusted terms (2008 dollars):

    2005: 8684
    2006: 10493
    2007: 9556
    2008: 9551

    Where was The Standard then, decrying the fact that it did not adjust for inflation, let alone population growth?

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