Thought for this Day: Budget Politics

Monday, 25 May 2015, 9:17 am
Article: Keith Rankin

Thought for this Day: Budget Politics

Keith Rankin, 25 May 2015

After watching TVNZ's Q+A yesterday – especially the Bill English interview and the ensuing panel discussion – I realised the full political significance of the Budget.

The issue of 'achieving a surplus' is political because it reflects the widespread popular belief – amplified by the mainstream media – that government achieving a financial surplus is not only important but is even more important than other achievements. The quest for surplus has taken precedent over addressing unemployment, inequality and environmental unsustainability.

Reflecting this popular view, National in 2011, in receipt of projections from Treasury and others that the economic cycle would of itself bring the government Budget into surplus mid-decade, saw it as an opportunity to take credit for something that would most likely happen anyway. Labour then said 'we too'. (Grant Robertson made it clear to me, on TV3's The Nation, that Labour continues to prioritise the government's Budget balance over other objectives.) Both parties adopted views that were framed by the mainstream media. Only National is trying to unshackle itself from that framing.

The problem for a government wanting to take credit for something that it believed would happen anyway, is that it had to be seen to be actively pursuing that goal, rather than merely sleepwalking to surplus. (When you let the media frame the political discourse, politics becomes substantially a matter of managing 'optics'; ie perceptions.) Those spending cuts have been damaging, completely unnecessary, and most likely counterproductive in that GDP (the tax base) today is below projection largely because of those cuts.

To lay rest to this particular bogey, National has gone for a big push to achieve a surplus in the 2015/16 financial year. The economic cycle will turn down in the year after that. Thus all the carrots in the Budget are timed to take effect from next year. But all the sticks take effect immediately.

In Gallipoli, 'one big push' at Chunuk Bair and before you knew it the Anzacs would be in Constantinople! The key point of this Budget is that it's the one final big push for surplus. It's 2015/16 or never. Unlike Constantinople, this goal may be achieved. And, if achieved, it will take this particular fiscal monkey of the National government's back, allowing priority to be shifted to more meaningful objectives.

In the meantime, while government is not borrowing, huge amounts of structural lending from businesses and households must continue to go as new debt to the speculators, to the poor and to the young. (See my Zero-Sum Financial Reality on Scoop on 19 May 2015, last week.) On TVNZ News last night this intensified lending to the poor was this apparent in the item about Door-to-Door Loan Sharks.

A key part of National's smoke and mirrors on the surplus is the removal of the Kiwisaver 'kickstart' payment. I'm all in favour of this because, as I noted in my 19 May article, we should not be stimulating the savings culture that feeds today's speculative debt. Here I note, simply, that when a $1,000 Kickstart was previously 'paid' to a 20-year-old signing up to Kiwisaver, that money would be immediately returned to government as a 45 year interest free loan. Smoke and mirrors indeed! This is purely an exercise in accounting optics.

ends

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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