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National’s Impending Swingeing Cuts

Written By: - Date published: 2:42 pm, January 26th, 2011 - 31 comments
Categories: Economy, education, health, national, public services - Tags:

Whilst John Key’s raising of privatisation is the first focus of his State of the Nation speech, perhaps equally as important is his intention for swingeing cuts to public services.

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 HousingBio-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…

31 comments on “National’s Impending Swingeing Cuts ”

  1. Pat 1

    What is “Swingeing”?

  2. BLiP 2

    Government cuts – working a treat in the UK, ain’t it?

    • Craig Glen Eden 2.1

      Hell so you mean cutting public servants jobs isnt going to solve our debt problem and what our economy will stall and splutter like Spains. Oh shit thank God for the Pixies at the bottom of Keys garden then. Oh no wait New solution just in,sell our/public assets to rich people that will do it

      Ha, alls good then, role out those prisons aye .

    • Bunji 2.2

      I thought you were going to link on something more like this, what with the large shrink in UK GDP announced today.

      2 right-wing governments making cuts, 2 economies shrink in their last announced GDP figures whilst most of the rest of the world strongly rebounds… Any connection? Probably not…

      • BLiP 2.2.1

        Yeah, I saw today’s stuff but then noticed that the Guardian had written about the unavoidable consequences *prior* to the implementation of the cuts. Still, as the Tories would have us believe, its probably just the weather . . . Yeah, right.

        • Bunji 2.2.1.1

          It was talked about before the election, so the British people can’t say they weren’t warned…
          But then I guess a majority didn’t vote conservative and the lib-dem voters didn’t think they were voting for cuts… if only they had MMP, eh? We don’t know how lucky we are… (although we won’t be very lucky if National get back in…)

  3. John Key is truly in lala land with this series of proposals.
    He talks about Mum and Dad investors taking a share in majority held state assets, but when Mum and Dad have had no wage rises since he came to power, and the cost of living has skyrocked – how the hell could they ever afford to invest in shares, even if they wanted to?

    • Bright Red 3.1

      and mum and dad are going to have to pay out of their diminished wallets for services they formerly got from the public service, or pay more.

      • orange whip? 3.1.1

        The tax cuts should help with that…

        Oh hang on, Mum & Dad paid for their own tax cuts with GST, ACC, and other tax increases.

  4. ghostwhowalksnz 4

    I notice that Keys claims about reducing debt are not “promises” but signals

    I smell a weasel. As their proposals will further kill growth and debt will increase

    • ZeeBop 4.1

      Key’s signals in increasing the burden of taxation onto the lower and middle deciles is that if you want to pay less tax then don’t work so hard. So rather, work harder at activities that are not taxed, like growing your own food, bartering your skills for drinks or other peoples skills, and just go off the grid. GDP should drop, shops dry up of consumers and we will all live happily ever after. Remember if you want to pay less tax don’t work so hard.

  5. Excellent post bunji. I’ve never seen this stuff explained so well. Personally, I think journos shouldn’t be admitted to the press gallery unless they can explain the difference between nominal changes and real per capita changes, and how to calculate them

    • lprent 5.1

      I’d agree – it is a clear analysis of the pitfalls of what Key wants. But from what I can see most political journo’s don’t know what a budget is. This may be somewhat beyond them.

      Most of them are like Tracey Watkins or Duncan Garner – more obsessed by appearances and press releases than having any understanding. As such they are more like the obsessional trolls with their key phrases that hang around here.

      You’ll probably have to wait until the business analysts start having a look at this topic (like Brian Fallow et al) before there is any intelligence about the downstream dire implications. For instance as we saw in the 80’s and 90’s, one of the issues that falls out of this is on required infrastructure.

      Infrastructural development gets continually deferred because it is politically easier than any of the alternatives above. That was the reason that so much basic roading and other transport got done in the 00’s – it’d been ignored by national under their sinking lid policies in the 90’s. All of the transport infrastructure that is going in even now comes from the planning and preliminary letting of contracts under Labour. Under tehse policies I wouldn’t expect to see anything substantive coming out of the pipeline.

      • Bunji 5.1.1

        Aw, gee shucks guys.

        I was about to add Another Three Reasons Privatisation’s Bad… but Marty you’ve got them and upped me another 3, so ‘great post’ right back at you.

  6. Carol 6

    But they haven’t been able to ignore Hone, who has come out against the proposed cuts and said that the Maori Party should pull support from NAct before the May budget. He’s also not ruling out taking over the leadership of the party. He’s also critical of the party spending so much money on Mai Chen – as reported on TV3 news tonight.

  7. Jenny 7

    Key shows his teeth.

    Announcing the Welfare cuts and privatisations before the elections, John Key seeks to create the environment necessary to claim that electoral victory will give him a mandate to impose the most extreme right wing administration, with the most openly reactionary policy direction seen in a generation.

    No matter how much Key and his backers would have loved to implement this sort of regime in their first term. The fact is, that they just just couldn’t claim to have any sort of mandate.

    That will be all different in their second term.

    We need to mobilise everyone opposed to National’s plans, to do what ever they can to prevent a National led second term government.

    • Craig Glen Eden 7.1

      Agreed that is going to mean the Greens being disciplined and putting up a united left Government in waiting position, not playing the Labour are not left enough game ( rehashing the Douglas/Prebble horror as if it was yesterday) that will only enable National to get back in.

      Antispam word: “enemy” thats National

      • Jenny 7.1.1

        Craig of Glen Eden. This is the last thing we need.

        Is your demand for “the Greens being disciplined”. – A condition of coalition with the Greens?

        And if it is, what is the point?

        Why would people vote for the Greens after “being disciplined”?

        They might as well vote Labour.

  8. jbanks 8

    You idiots are dreaming if you think that Labour won’t be doing the same.

    According to Treasury’s 2010 tax model data, a $5,000 tax-free bracket would cost $1.58 billion (10.5% of all income in the zero – $5,000 range). Reintroducing a 39% top tax-bracket on “incomes comfortably into six figures” would claw back only $290 million if the threshold is $150,000, or $558 million if it is $100,000. Which means that 60 – 80% of the threshold will be paid for by reducing avoidance. Goff’s statement that

    “No one knows exactly how much is lost by people dodging their tax – but it’s been estimated in the billions.”

    is carrying an awful lot of weight here.

    http://norightturn.blogspot.com/2011/01/good-policy-ruined-by-magical-thinking.html

    • Colonial Viper 8.1

      Of course Labour won’t be doing the same, they don’t have the cluelessness and incompetence of Bill and John, further Labour won’t be running the country just for the top 5% of earners to make even more money.

      • jbanks 8.1.1

        Nice vague rhetoric.

        Now where is Labour getting the money from again? The figures don’t add up but all you muppets just want to ignore that.

    • KJT 8.2

      I suspect that introducing stimulus at the low wage end of the economy would also increase the tax take as low income earners spend extra money in local businesses.

      As the tax working group found half of the top earners paid little or no tax. Closing trusts and other loopholes could earn a lot of tax off the bludgers.

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