Normally we have to wait until the budget comes out before we hear that most overused of post-budget phrases, “there’s nothing in the budget for me”.
This time around, the serial compainers have beaten even the finance minister to it, with claims that there’s nothing in the budget for Māori, before the minister has even taken the budget stage. Perhaps they know something that we don’t.
Today is budget day. It will be Finance Minister Nicola Willis’s first budget. While I don’t claim to know what goes on behind the political scenes, I imagine that this budget has been one of the more difficult to put together.
The reality is that the last government ran our economy into the ground with their borrow and spend mentality, and we now have to pay for the damage. The government has signalled as much. With the exception of some very modest tax cuts, which will only seek to begin to re-align the tax thresholds, there won’t be much in the budget for any of us. And that’s ok. We should want a budget for the country, rather than a budget for any group of individuals.
It doesn’t matter whether you are running a household, a company or a government, when you’re broke you only have a couple of options. You can earn more, or you can spend less.
New Zealand is broke for a number of reasons. Like many households, the country took on a lot of debt when interest rates were low and the cost of servicing that debt was not expensive. But that’s all changed. The money pumped into the economy predictably contributed to an inflationary spiral that we’re struggling to control. Interest rates have gone up substantially in an effort to control the inflation and that debt binge is now costing us dearly.
We also increased our cost base during that time. In particular, an additional 18,000 public servants at an average remuneration of $93,000pa was only the start of it. As we know, people carry overhead. The office space, the phones, the transport costs, the coffees and the lunches all add up. The unfortunate bit is that we don’t have much to show for our largesse. Crime didn’t go down and neither did hospital waiting lists. Educational outcomes became worse not better. You get the idea.
And so now we have an underperforming economy, crippled government services and we’ve run out of money to solve the problems, because our debt levels are already unaffordable.
The decision to earn more or spend less is a relatively straightforward forward one. In an overstretched household, generating additional income might take a while. You may have to find additional work or a secondary job. In a recession doing so can be slow going. At a government level, earning additional income is really slow work. We need to build the economy and the capability of our businesses that will then pay taxes. Again, in a recessionary environment, that can be slow going. It’s why we’ve seen our government ministers heading out to international markets in Asia, the USA and South America lately. They’re trying to drum up business. But the outcomes of those efforts will take time, probably three to five years at least.
And so the quickest way to get on top of our economic predicament is to cut costs. It’s just like the rest of us. In a household, if one of the breadwinners was to lose their job, then cutting spending is the best immediate action. A business that loses a major client is no different. And getting spending down is something you can do quite quickly.
Decreasing government spending takes a bit longer because government machinery moves slowly, but in relative terms it is still the fastest way to get on top of our economic troubles.
Given our dire financial position, there have been plenty of calls for abandoning the tax cuts and even for increasing taxes. There’s a couple of responses to this. Firstly, the new government promised tax cuts as part of their election campaign, and although they are likely to be modest in quantum, the delivery of that promise is important in regards to our trust in the political process.
But secondly, there is no point in continuing to raise money from constituents so as more money can be wasted. Getting on top of spending is a critical discipline, and done properly should lead to long term improvements in economic management.
We desperately need to look at the quality of our spending, focussing on the delivery of vital services, essential infrastructure and looking after those most vulnerable. That includes being able to pay competitive salaries to critical employees such as police, nurses and teachers. We will never achieve those objectives with a bloated cost base.
A good place to start would be those 18,000 additional jobs. On the face of it, they didn’t deliver outcomes. So we need a rethink. Would I rather have a bureaucrat or a cop? Or a nurse? Of perhaps a cancer drug? We need to spend what little money we have on areas where there is a payback.
I’d like to see some vision and direction that will take us to where we need to be. How about a budget with a goal to reduce “back office” public servant numbers by 20,000 and to replace them with 10,000 front line people who can make things better. That would be a good place to start.
And so, to all those people with their hands out; those who say that there’s nothing in the budget for them. You’re just going to have to wait. Because a strong country, with a strong economy will do well for ALL of the people within it.
This article first appeared on News Talk ZB Plus, 30th May 2024.
Bruce Cotterill is a company director and adviser to business leaders. He is the author of the book, The Best Leaders Don’t Shout, a regular NZ Herald columnist and host of the NZME’s podcast, Leaders Getting Coffee. www.brucecotterill.com
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