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Sludge Report #137 – Where’s The Dosh?

In This Edition: Great Numbers, But Where’s The Dosh?

NOTE: Authors of this report will be anonymous and wide ranging, and occasionally finely balanced. Indeed you are invited to contribute: The format is as a reporters notebook. It will be published as and when material is available. C.D. Sludge can be contacted at The Sludge Report is available as a free email service..Click HERE - to subscribe...

Sludge Report #137

Great Numbers, But Where’s The Dosh?

Michael Cullen’s first three budgets for the Fourth Labour Government have been something of an exercise in diminishing returns.

Over time spending gets smaller. Government debt gets smaller. The press pack gets smaller. And Cullen’s explanation for why this makes sense when delivered by an allegedly left-leaning Finance Minister gets steadily thinner.

The only thing that has increased over the 2.5 years since the last election is our Finance Minister’s capacity for disingenuous explanation.

Michael Cullen’s term as Finance Minister began with a bit of a bang in 2000. Interest was removed from student loans, income related rents on State Houses were introduced, and Super was restored to 65% of the average wage.

But unfortunately for New Zealand’s working families, students, children and beneficiaries (most of whom probably voted Labour) Cullen more or less blew his full load in his first year, and has, as a result, had virtually nothing left in his cupboard his last two budgets.

(For background on Budget 2001 see..
Sludge Report #71 – Old Mother Hubbard’s Budget &
Budget 2001 - Full Coverage)

Today’s budget is spectacular in only one respect. It’s complete absence of substance. This is the most boring budget ever. Bill Birch, aka the Prince of darkness, will be green with envy.

A one page sheet (in large print) covers the “highlights and key points” of Budget 2002.

And given the brevity of these spending highlights, they can be reproduced here in a single paragraph.

In Budget 2002 Michael Cullen has provided: $614 million (over four years) for Tertiary education and skills training; $61 million (over four years) for early childhood education; $620 million (over four years) towards hospital building; $200 million (over five years) for meningitis vaccinations; $35.4 million (over four years) for science and research and $349 million (over 10 years) to hut maintenance.

It is illustrative of the depth of this budget that a DOC hut maintenance programme is one of six key spending initiatives!

But perhaps the key thing to observe about the figures above is that they all need to be divided by the period of the expenditure before they start to make any sense. $400 million on Tertiary education sounds grand, to be sure, but $100 million a year sounds considerably less generous.

And a $15 million a year increase in expenditure on Early Childhood Education is not exactly earth shattering.

Moreover Sludge suspects that if the minutiae are examined more closely, a budget burrower will discover that most of the “highlighted” spending will not take place this year anyway.

Which of course begs the question what is all this fiscal austerity in aid of?

The answer it seems is the production of a great bottom line.

While children, hospitals, schools (and teachers) get crumbs, we can all be delighted today to learn that the 01/02 budget surplus is $2.3 billion.

This, Labour MPs will be telling us all afternoon and night, is the sort of budget that any finance minister in the world would be enormously proud to deliver. Unemployment is at historical lows. The Government’s finances are in order. Well done Michael!

Fantastic news indeed, but for whom? True, if NZ was a company then its shareholder value would probably be going through the roof. But NZ is not a company. It’s a country. If NZ was a company we could sell the shares while the going is good, go on an overseas holiday and buy the kids some new shoes.

Similarly the surplus projections may be good news for Cullen when it comes to facing down questions on whether he is borrowing to fund his super scheme, which he isn’t, but such a benefit seems remarkably targeted in its impact.

New Zealand is like a household in which the children are starving and the cupboards are bare, but dad is delighted because he has a nice big deposit in his savings account, which he intends to keep there till the kids are grown up and he has retired.

Melodramatic, may be, but when one considers the range of urgent resource based social problems facing New Zealand in areas from mental health to cancer treatment to child poverty, ballooning Student Debt, striking teachers and immigrant assimilation the comparison makes some sense.

Compare this too with the spin.

Today’s budget’s authors have chosen to observe in the Education summary sheet that they have increased funding per-pupil in compulsory education by 2.2%. They failed to point out however that this is in nominal terms, not real terms, and that they are forecasting 2.1% inflation over the same period, not to mention 2.6% inflation over the previous 12 months. So is this really an increase in funding?

Which brings Sludge to the great imponderable of today.

What is the point of achieving a great bottom line if you don’t then spend it, ever.

After 12 years of fiscal austerity most NZers will not be surprised to hear that the Government’s finances are in good shape. They ought to be after 12 years of penny pinching.

But Sludge thinks that many NZers, especially those cast from the traditional Labour voter mould, will be asking when the dosh is finally going to start flowing to the people who voted this government into power.

Some may have taken heart when the Finance Minister indicated he was planning on removing the “artificial” device of a fiscal spending cap. Such a cap is only needed for someone like Winston, Dr Cullen advises.

But if someone anticipating a spending expansion under the next Labour Government asks Michael Cullen the question they will receive a remarkably unsatisfactory reply.

During today’s press conference Sludge attempted to ask precisely this question, and cutting through the econo-babble emitted by the Finance Minister in reply, Cullen’s response appeared to amount to “not any time soon”.

When discussing health funding at length in his speech Dr Cullen concludes effectively that his planned increases of $400 million a year for the next three years are all that the sector warrants receiving. These increases are however considerably less than the annual spending increases health received under, for example, the NZ First National Government (and that was from a lower baseline, and when inflation was lower). Bear in mind also that the Labour Government in the UK has just announced a 60% increase in health expenditure over the next five years.

It is difficult to imagine why any trainee nurses and doctors produced in New Zealand’s squeezed tertiary institutions, who graduate with huge student loans, will bother to stay in New Zealand’s squeezed public health system. But hey! The bottom line looks great, and who really needs nurses anyway?

Anti©opyright Sludge 2002

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