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The Budget: Ratings Agencies Should Be Pleased

The Budget wasn’t boring – it was a failure of a Government’s responsibility to New Zealanders. Its focus was on balancing the books and reducing debt. That is not what Governments are elected for: it is a means to an end, not an end in itself, and there are many ways to manage the government’s finances responsibly. The primary objective should be to look after the present and future interests of New Zealanders: our education, our health, our security, our environment, our living standards and New Zealand’s ability to improve them now and in the future.

What was missing? Anything much for low income and middle income New Zealanders. Working for Families is reducing in value, but it was not fixed. Housing is in crisis with people homeless and Auckland housing unaffordable for most working people, with unaffordability spreading around the country, yet the Budget fiddled around the edges, treating symptoms rather than underlying causes. Nothing was done to raise incomes of beneficiaries, and health and education spending are falling as a proportion of GDP, despite rapidly increasing population and evidence of social and economic needs.

The Government’s version of ‘social investment’ was a feature of the Budget. Its underlying ideas are attractive but this version is focussed too much on saving money and not enough on the benefits of public services. Its extreme targeting could undermine the principle that a decent society looks after the needs of all.

Treasury’s economic forecasts may be optimistic, but taken at face value they show slow economic growth per person, unemployment remaining high and real wages stagnant or falling over the next two years, and a falling share of income going to wage and salary earners.

But there are alternatives that would allow a progressive Government to do more while looking after the government’s finances. It could raise taxes, reducing inequality and encouraging productive investment along the way. New Zealand’s public debt is not high: a Government could reduce it as a proportion of GDP by just allowing a growing economy to do the work. That would free up several billion dollars to be used for sound purposes.

A progressive Government does not have to take on the straightjacket of the current government in either its version of ‘social investment’ or fiscal rectitude. It can be responsible socially, environmentally and economically and still be a good manager of the public finances.

Download the full bulletin: CTU Economic Bulletin – May 2016