NZ Budget 2017. A Government trying to make up for past neglect – Max Rashbrooke. 

In it’s 2017 Budget the NZ Government seems to be playing the role of a parent who, after years of providing minimal support, turns up at their child’s birthday party bearing presents and hoping to be showered with praise.

There is, admittedly, much to commend in the Budget, for what it does to support New Zealanders and to increase fairness: the $321 million package for “social investment”, focused on mental health; the major boost to Working for Families that will raise payments by up to $26 a week per child; the lift in the accommodation supplement that gives low-income people $25-$75 extra a week to offset housing costs; and so on.

And the Government did last year increase benefits for those with children by $25 a week.

But this has to be set against the overall neglect of past years. Working for Families may get an extra $1.1 billion between now and 2021, but it has, according to Auckland University assistant professor Susan St John, been cut by $2.8 billion since 2010. Those cuts have been made stealthily, by clawing back more of the payments as people’s incomes rise and by not adjusting payments for inflation.

The low- and middle-income families who rely on those payments to make ends meet are still worse off in the bigger picture.

Health, meanwhile, gets a little under $900 million in the coming year, but analysis by the CTU shows that it needed nearly $1.1 billion just to keep up with health sector inflation – the increased costs of medicines and equipment – and the equal-pay settlement for aged-care workers.

So despite the headlines, and some genuine giveaways, this Budget often falls short of what is needed just to maintain current services, adding to the shortfalls that have occurred throughout the past eight years.

That parsimony has been a choice, not a necessity: ministers could have maintained vital services by adding a little to our extremely low government debt, an investment that would have more than paid itself off over the long run.

The Government may say that it is spending more, in pure cash terms, than it did on taking office.

But the true value of its spending can be seen only when it is adjusted for inflation, which eats away at the worth of each dollar, and for population growth, since each extra person – as a patient, a pupil, or whatever – needs extra funding.

Calculations by Victoria University and the New Zealand Institute for Economic Research show that, from 2009 to 2016, core government spending actually fell on an inflation-adjusted, per-person basis – only by 0.7 per cent, hardly the slash-and-burn some on the Left would claim, but a cut nonetheless, at a time when the  global financial crisis has been hammering families and problems like climate change have loomed ever larger.

It’s no wonder that schools, for instance, are struggling, when their funding has, on this measure, fallen in the past seven years.

Separately, Forest & Bird calculates that spending on core native species protection has dropped 21 per cent since 2009 – a cumulative shortfall of $230 million.

And the damage done by these funding shortfalls is clear to see, in the thousands of New Zealanders who are homeless, in the tens of thousands of children living in poverty, or in the over-subscribed mental health services having to turn people away.

The Budget will, of course, get plaudits for lifting disposable incomes through its tax threshold changes, something that makes the biggest difference, proportionately, to low- and middle-income earners.

But people on six-figure salaries will also be made more than $30 a week better off by the tax cuts, even though they are hardly struggling now.

And bear in mind that, even though more people have been moving into higher tax brackets (a process known as fiscal drag), New Zealand still takes less in income tax from typical wage earners than any other developed country, according to the OECD.

The consequence of the latest tax cuts, especially those that benefit the already well-off, is that there is relatively little to spend on the collective goods needed for the country to function: protecting endangered species from extinction, educating our children for a fulfilling and active life, making sure everyone has a warm and safe house, and so on.

Finance Minister Steven Joyce says the families package will lift 50,000 children out of poverty. That would be fantastic news. But presumably it relies on the extra money really going into families’ pockets, as opposed to being swept up by landlords who may now think they can charge more.

And with little in the Budget to help build houses and create more competition among landlords, the latter scenario looks quite likely.

The Budget may still be an electoral success. Governments often aim not to solve problems but to stop their softest voters deserting them on specific issues, and this Budget may do just that for compassionate National supporters. It really depends on how much voters feel inclined to punish ministers for their past neglect.


Max Rashbrooke is the author of Wealth and New Zealand and a research associate at the Institute for Governance and Policy Studies.

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