Article by Hon Sir Roger Douglas, ACT New Zealand
Thursday, 28 May 2009
The tax cuts for 2010 and 2011 have been shelved. This is despite John Key promising in the Budget Speech last year that 'under National, personal tax cuts are a priority. New Zealanders will be able to believe in our tax cuts, they will be able to trust our tax cuts.'
The tax cuts that have been shelved cost under $1 billion. Government spending in the 09/10 year is over $65 billion. In other words, the Government needed to find just 1.5 percent of waste to deliver their tax cuts. This is against a backdrop where Government spending is, in real terms, $18 billion dollars higher than it was nine years ago.
Government expenditure is on the rise. Core Crown Expenditure in the 2007/2008 was 31.8 percent of GDP. Under National it will surge to 37.3 percent of GDP in 2010/2011. Even by 2012/2013, it is 36.3 percent.
The cost of spending to the private sector is not just the value that the dollar would have had in the private sector. It is the cost of raising that dollar of revenue – and that is estimated to be $1.20. In other words Government is costing us far more than we even realise.
Health spending in nominal terms is set to increase by over eight percent. Nothing is being done about the incentives in the system, which under Labour saw spending increase by 50 percent, but productivity for doctors and nurses dive 15 and 11 percent respectively.
Moreover, National is emphasising that the annual operating allowance has decreased from $1.75 billion to $1.45 billion. While this is true, the inflationary expectations have dropped significantly from forecasts in previous budgets. In other words, reductions in nominal terms cannot be a test of fiscal prudence.
The current level of Government deficit is one third what it was in 1984. Back in 1984, we managed to get the books back into the black within 3 years. Today, with a deficit one third of the size it was then, it is going to take 11 years to get back to surplus.
Any deficit today has to be repaid with interest by future generations. The deficit is not huge, but its existence shows the unwillingness to make modest cuts to return to surplus quickly.
The budget claims to put productivity first on the Government's agenda. The most important thing that the Government could do to deliver productivity gains is to reduce taxes and reform the public sector. They've given up on the tax cuts, and they've set out no agenda for public sector reform.