He has announced that instead of their current $1.1 billion ‘new spending allowance’ in future years it will be $800-900 million.
Less new spending, no big deal, right? Except it’s not ‘new spending’; perhaps why it has the technical name in economic circles of Budgetary Operating Provision instead. In fact spending must increase each year because costs increase, above inflation.
Here’s how Treasury sees what public services individual kiwis will receive in future. A $1.1 billion Budgetary Operating Provision is their khaki “sustainable debt” line, with public services cut by a little over 10% in the first decade.
Above inflation we have population increase. And in Health, that’s greater than general population increase as New Zealand ages. Without this year’s budget written, there can be no specific figures, but if we continue with past tracks and hints that Treasury have made (and National seem to be largely following Treasury advice), in Health they would have some real increase in spending, but not enough to cover the population increase. With a cut to $800million, there would likely be no real increase, and nothing to cover an increasing and increasingly elderly population.
In Education the school population is not expected to increase (and with restrictions on places at universities they intend to ensure that people don’t upskill in greater numbers), so they would have largely had the service per capita measure covered. With further cuts even this can’t be guaranteed.
But beyond inflation and population increase there’s real Wage Growth. Although not enough to catch (or keep up with) Australia, Treasury allows for 1.2% real wage growth per year. But there is no provision in any budget for wage increases. So unless the Doctors, Nurses and Teachers all happily accept pay freezes (and don’t head off to better paid jobs overseas), the budgets won’t add up.
There is much more worry for Other Public Services. This doesn’t include benefits, but rather Law & Order, Defence, Transport, KiwiSaver, Customs, Conservation, Housing, Social Services and Department of Labour. With the $1.1 billion ‘new spending’ target there was still forecast to be a 10% cut in this sector, before any Wage Growth for civil servants. With only $800 million…
In Other Public Services also comes Prisons. With National’s 3 Strikes and No Parole policies the Department of Corrections is scheduled to soon become New Zealand’s largest government department. There can be no cuts with an increasing prison population. So what does that mean for numbers of Police and their resources? Public Housing? Bio-security? Enforcement of Worker’s Rights and Justice more widely? Stretching of Social Services who already can’t cope?
To maintain public services at the level we currently have there needs to be a nearly $2billion Budgetary Operating Provision (or JK’s ‘new spending’). Anything below that requires either Magic Money from Pixies or cuts to the civil service. At $1.1billion/year those cuts were scary; at $800million they will only be more swingeing.
To cover the gap they have 3 options: a) freeze all public sector (Doctors, Nurses, Police, Teachers) salaries for 10 years; b) find magical “efficiencies” and “productivity gains” from a sector that had all its fat and some of its muscle removed in the 90s; or c) large cuts to the public services.
So expect to see large cuts in the near future then…