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Gordon Campbell on yesterday’s Budget

Gordon Campbell on yesterday’s Budget

Budgies, so their Wikipedia page says, are popular pets around the world due to their small size, low cost, and ability to mimic human speech. Which is a reasonably good description of Finance Minister Bill English eighth Budget. Especially when it comes to the mimicry bit about providing an adequate response to this country’s social and developmental needs.

In reality, the $1.6 billion of new investment will be spread desperately thinly, and targeted to virtual extinction. This modest amount will be dwarfed by the $2-3 billion programme of tax cuts that the Prime Minister is mooting for election year 2017. On past performance, those tax cuts will be frittered away on consumer spending…. and will only heighten the income inequality exacerbating the social problems that this Budget deliberately fails to address.

Up on Bill’s World however, the outlook seems as rosy as ever.. Look, GDP is growing. Surpluses are being piled up. The average wage is on the rise - even if it is only being pulled aloft by soaring CEO salaries and the culling of middle class jobs. Treasury is doing its bit too, to lull the nation to sleep. In the Budget, there are some heroic Treasury assumptions that immigration will magically fall from the current 70,000 a year to 12,000 p.a. over the next four years, and that dairy prices will bounce back significantly over the forecast period.

Social problems? Hmmm. Politically speaking, these can either be ignored or fobbed off with token amounts over the forecast period. Targeting has become the new black. Operational grants for schools have been frozen, thereby putting further pressure on parents to meet the funding shortfalls in the education of their children – as small amounts of money get targeted instead at the classroom needs of the children of long term beneficiaries. Magically, this micro-targeting process will somehow avoid the stigmatization of such children.



In the wider area of welfare reform… well, a science fiction process has been going on for some time, whereby welfare assistance will not only be targeted in future, but this targeting will also be ‘data-driven‘ by algorithms that claim to be able to predict welfare dependency even before it occurs. New Zealand is apparently, a world leader in its readiness to “innovate” in this area. Still, it wasn’t all plain sailing in yesterday’s Budget for the “Taxation is Theft” crowd. Amid the trumpeted $2.1 Billion Investment in Public Infrastructure, the really big ticket item (of nearly $900 million) was ear-marked to enable Inland Revenue to build and operate a modern, more efficient tax gathering system.

One can only imagine the screams of outrage if a centre-left government had gone haring off down that road. For his part, English has tweaked the usual ‘tax and spend’ formula so that we now get the taxing, but without very much of the spending bit that used to go with it. Kiwirail did receive another $190 million yesterday though, however grudgingly: “The government has a strong expectation,” English noted, “that Kiwirail will continue to improve its performance to reduce the level of Crown support required in future”. Good luck with that. But affordable housing, mental health, the growing gaps of income inequality? There were only pittances, or nothing at all. Such problems seem to be receding in the government’s rear vision mirror, as it speeds onwards to its tax cut party next year.

Sometimes yesterday, the sense of dislocation between the government’s measures of wellbeing and the existence of social need felt quite surreal. For example : during the q & a session with reporters at the end of the Budget lockup, English pointed out with satisfaction, unbidden, that Treasury – which he characterised as being pretty good at forecasting - was predicting that the current account deficit would henceforth settle at around 4-5% of GDP, rather than at the usual 6-7 % of GDP. Hear that news and rejoice, ye homeless of south Auckland!

Plainly, the social spending priorities have been sorted. New funding has been found for more public toilets for tourists. (Presumably, to go alongside The Church of the Good Shepherd at Lake Tekapo.) Other Budget highlights ? Those would have to include English’s shameless claim that spending was tight and would always have to be results-driven in future – even while, in the next breath, he announced that millions of dollars had been found for a new slate of charter schools, an ideological experiment that appears immune to any rational cost/benefit analysis.

In that respect, the splurge on charter schools was also quite unlike the painful pace at which the long-mooted national screening programme for bowel cancer will be allowed to proceed. This will inch along at a glacially slow rate, via phased-in ‘pilot’ programmes set to receive only a $39.3 million funding input over the next four years. In the meantime, hundreds of New Zealanders a year will continue to die annually from bowel cancer, which responds well to early detection and treatment.

Jobs and wages. Still, as I pointed out cheerily to Council of Trade Unions economist Bill Rosenberg at the Budget lockup, English did claim in his Budget speech that 200,000 more people are now in work, and that 170,000 new jobs are in prospect by 2020 – surely the CTU must be over the moon about that news?

Well no, not so much. “What we’re seeing,” Rosenberg replied, “is that unemployment is continuing at 5.6 % next year, which will mean 146,000 people will still be out of work, by June next year… and with a 5.1 % rate [being predicted] by 2018. Counting more jobs when you’ve got a high increase in the working age population, and when you’ve also got high immigration,” Rosenberg added, “just doesn’t cut it.”

Right. So there are demographic and immigration factors that are feeding those gross numbers of jobs created, and numbers for people in work. Did Rosenberg have any information on the quality of those new jobs, compared to the quality of jobs created in the past? “They’re forecasting very weak wage growth,” Rosenberg replied. “So, real wages will be up by only 0.8% next year, and will be falling by 0.3 % the following year. We’re also seeing a fall in the share of the economy going to peoples’ wages over the forecast period, from this year until 2020. They’re forecasting that working people will lose a 1.3% share of the economy – which are big numbers. That’s worth about $400 per person, per year [up until 2020.]”

Putting that worsening outlook in another way: ”If working people had simply retained their current share of the economy, they would each be $400 a year better off than what is being forecast. ” Clearly, that’s a different reality to what’s visible from Bill’s World. ”This is a sticking plaster Budget that addresses the immediate screams of the focus groups,” Rosenberg concludes. “ But it doesn’t address the longer-term needs that we should be addressing. And housing…that has just been left unaddressed in this Budget, in any significant way.”

True, the Budget contained no new measures to restrain soaring house prices, or to assist people into first homes. Some extra funding has been allocated for social housing, but as UNICEF NZ has already pointed out, the funds are inadequate for the tasks at hand :

The new investment of $258m in social housing, including increased subsidies for income-related rents and special needs grants is desperately needed, but is insufficient to make the measurable improvements in housing availability and affordability needed in Auckland, and in other parts of the country.

Do Budgets matter anymore? The problem is not simply that almost everything in the 2016 Budget had already been announced in the preceding weeks. The situation is worse than that. The government is for example, about to release a Defence White Paper setting out replacement costs reliably estimated by overseas authorities at $11 billion over the next decade. Yet one will search in vain through the Budget projections for any sign of such costs – which threaten to blow the Budget forecasts to smithereens. The few Defence spending items cited are the relatively minor ones, to do with the residues of compliance with the 2010 White Paper and the 2014 Defence Force Assessment. Finally, hidden at p.73 of the Budget Economic and Fiscal Update footnotes (on “ Specific Fiscal Risks”) is this deceptively bland paragraph :

A Defence White Paper is being developed to ensure the NZ Defence Force is structured and equipped to meet the government’s defence policy requirements out to 2030 and beyond. Changes to NZDF operating and/or capital funding may be made over the forecast period to achieve the Defence White Paper settings.”

Right. That 2016 Defence White Paper is only weeks away, if that. That fact alone not only renders these Budget forecasts and projections virtually obsolete on delivery, but – in the light of the massive expenditures involved – it also makes any talk of tax cuts in 2017 seem even more irresponsible than usual.

Health funding, again. Just as English and Co. try to obscure the troubling jobs and wages outlook by babbling on about gross numbers, they have used exactly the same ruse with health funding, too Look, English says, more money is being provided for health. Record amounts of it. DHBs for instance, will receive an extra $400 million in 2016/17 “ to invest in services, improve access, and to meet cost pressures and population growth. ” Is he kidding ? Do the math : that’s $400 million extra to 20 DHBs, all of which are already under significant pressure, or a princely $20 million each. Go crazy, you crazy health people.

Like it or not, New Zealand has an ageing population. It recognises that fact when it comes to national superannuation, which now costs more than the entire welfare budget. But since this unfortunate fact is politically radio-active, it is off the table for discussion. In Vote Health though, the needs of an ageing population can be virtually ignored. This government is not allocating enough funds to meet the existing unmet health needs in public health– let alone the challenges that are coming down the pike.

On Bill’s World, everyone can afford private health care. Yet within the public health system, the shortfalls are evident all the way from the GPs providing the primary care to the specialists, whom New Zealand is patently failing to attract in sufficient numbers to meet its current staffing targets. The problem with specialists is not so much in wages – no health professional comes to New Zealand to make money – but in the overworked and understaffed conditions common to our chronically underfunded public health system. That’s what is driving away the specialists we need.

In reality, Vote Health’s share of the GDP of this country is in decline, and that trend has been evident since 2010. For its part, Pharmac has also been struggling to afford the new class of medicines coming up over the horizon. In recent months, there had been politically embarrassing headlines over Pharmac delays in funding the new and expensive ‘biologics” treatments for cancers, including melanomas. So, extra money has now been thrown at Pharmac, in order to dampen down the public disquiet. In this Budget, Pharmac gets an extra $124 million to purchase such treatments between now and 2020.

Fine. But there’s a weird assumption lurking in those Pharmac figures. At the Budget lockup, I asked English two questions about health – one, why is the government predicting that Pharmac’s funding for new medicines will actually decline [ from $39 million this year to $27 million in 2020] given the rising health needs of an ageing population ? And secondly, is health funding – as a proportion of GDP – now higher or lower, than it was in 2010 ?

On the Pharmac funding point, English declined comment, but referred me to Treasury – who told me that this decline had been volunteered by Pharmac as part of its own Budget initiative, and probably reflected Pharmac’s confidence that competition will bring down prices for biologics. Right now, that seems a very, very optimistic assumption. Why on earth does Pharmac think that the extra funds for the new and expensive biologics drugs and other new treatments, can be safely allowed to decline by 31 % over the next four years – from $39 million now to $27 million by 2020 ? Surely, this can only mean that Pharmac is expecting to rob money from other parts of its operations. It will struggle to do so. Because, as this article indicates, sky high drug prices have become the new normal.

Another factor contributing to our “new normal” of high prescription drug prices and spending is the lack of meaningful competition for expensive biologic drugs. Congress gave the Food and Drug Administration (FDA) the authority to approve follow-on biologics, or biosimilars, as part of the Affordable Care Act. However, five years and only one biosimilar launch later, it is clear that price competition in the biosimilar market will not mirror what is seen in the traditional generic drug market any time soon. This discrepancy is due to a variety of factors.

One of the primary barriers to meaningful price competition for biologic drugs is how long they are able to remain on the market without any biosimilar competition. Every biologic drug benefits from at least 12 years of market exclusivity during which they are able to price their products based on “what the market will bear.” This monopoly period is much longer than the five-year market exclusivity period provided for most brand name drugs and—at least according to the Federal Trade Commission—completely unnecessary.

Yet Pharmac thinks that these drugs are going to get significantly cheaper over the next four years? Dream on. On the GDP question, English was a bit more expansive. Basically, he entirely rejected the relevance of calculating health spending as a proportion of GDP. Instead, he suggested to me, we should be looking at the outcomes that the health system has been achieving…and looking in particular at those areas where health outcomes have been improving, regardless. True, those outcomes certainly are a tribute to the nurses, doctors and specialists who have been achieving them, against the odds. But reducing their funds proportionately seems like a very odd way of incentivising the health workers concerned. This government appears intent on enforcing a deliberate reduction in the share of the nation’s wealth that is being allocated to healthcare. To repeat : this is a blind – and unsustainable – way of planning for the health needs of an ageing population.

Tax cuts, tax cuts tax cuts. Like the fat kid at the tuck shop who tries to buy popularity by plying his friends with lollies, the government seems intent on its tax cut programme in election year. We’re all now saving for that goal, by being starved of public services. One could point to any number of false economies in this Budget. Education is another disaster area. I’ve already mentioned the freezing of schools operational grants and the micro-targeting of classroom assistance to the children of long term beneficiaries. True, there have been small increases in the amounts for special needs education, but this barely compensates for the past neglect of this sector. Early childhood education is another problem area:

Early Childhood Council CEO Peter Reynolds….called the Budget ‘just another few frames of the slow motion train wreck that is government funding for ECE’. Accumulated cuts, over the past five years, had now reached $90,000 a year for the average centre, he said.

And New Zealand was now full of ECE centres, running at a loss, battling to maintain quality and keep parent fees down, and eating up their reserves year after year to do so. Mr Reynolds said there was an increasing amount of anger throughout the sector ‘at a Government determined to reduce per-child funding for early childhood education services year after year’.

Such are the starvation rations this government is imposing on (most of( us, in order to finance its tax cut sweets in election year, 2017. Maybe it is time that all of us, like Oliver, began demanding more.

Problems, schmoblems. Religion isn’t the main social opiate anymore. Tax cuts are. Like Chamillionaire, we’re supposed to be in luv with our money, and married to our dough…


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