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Dunne's Weekly: Nicola Willis Gives Voters The Money, Not The Bag

Notwithstanding all the usual pre-Budget media hype it is worth remembering that Budgets seldom defeat governments. Game-changing Budgets – like Sir Roger Douglas’s 1984 Labour Budget or Ruth Richardson’s 1991 National “Mother of All Budgets” – which profoundly shook up the existing social and economic order, did not lead to their governments’ defeat at the next election.

Indeed, the only post-war Budget which could be held to be at least partially responsible for a government losing the following election was Labour’s 1958 “Black” Budget. But even then, there were extenuating circumstances – Labour had been elected by the barest of majorities in 1957, so was always going to struggle to win a second term in 1960. This was even before the 33% personal income tax increase and the sharp rise in taxes on alcohol and tobacco – the “working man’s pleasures” of the time – that the “Black” Budget introduced.

The 1958 Budget was a shock because it was unexpected, rather than because of its contents. In those days, there was very little media commentary or discussion in the lead-up to the Budget. There was certainly not the round of pre-Budget softening-up speeches and presentations we are used to today, or the post-Budget roadshows that Prime Ministers and Ministers of Finance now carry out. So, the Budget was really a bolt from the blue.

Back then, Budgets were seen simply as the government’s annual economic statement. Today, Budgets have a wider role – they are not only the government’s annual economic statement, but they also shape much of the ensuing political agenda.

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Nicola Willis’s first Budget focuses strongly on achieving National’s pre-election commitments on tax relief for what she calls the “squeezed middle of New Zealand”, as well as meeting other commitments in health, education, and infrastructure. While the Budget was accompanied by widespread protests, it is unlikely to determine the result of the next election, if history is any guide.

The Budget draws more starkly the ideological line between National-led governments of the centre-right, and Labour-led governments of the centre-left. It makes a strong point of providing $3.7 billion a year of tax relief to New Zealand households through cutting back or eliminating some 240 specific policies of the previous government at an annual cost of $5.86 billion. It sends a clear, quasi-moral message that this government believes households should decide their own futures, rather than rely on a range of government programmes, however well they are targeted.

At the same time, the government is boosting health spending by $8.2 billion, education by $2.9 billion, law and order by almost $3 billion, and disability services by just over $1 billion through a combination of new funding and “reprioritisations”. The government is also committing to spending $68 billion over the next five years on infrastructure, including road and rail upgrades (although there is no mention of new Cook Strait ferries). In the longer term, the government is pledging to hold the net increase in new spending to $2.4 billion a year – a nearly 33% reduction on annual new spending levels that happened under Labour – which means there will be an ongoing focus on programme cuts and reprioritisations.

While National and its coalition partners will be seen to have delivered substantially on their pre-election commitments and will be able to draw some satisfaction from that, bigger questions remain. From a macroeconomic perspective, the Budget is unlikely to cause too many ripples. A one-year delay in the projected return to a Budget surplus and a debt level to GDP ratio remaining at around 44% are still good by international standards and are therefore unlikely to be problematic.

The wider question relates to the domestic political reaction. This year’s Budget marks the end of what Sir Bill English used to call the “nice to haves” that people became increasingly used to during Labour’s time in office. For example, last year Labour scored heavily with the abolition of prescription charges. But how will people react to prescriptions charges being reinstated for everyone but superannuitants and community service card holders in this year’s Budget? Will they buy the argument that this is more than compensated for by the forthcoming tax relief of up to $78 a fortnight?

And what about the delay to funding additional cancer drugs that National promised at election time? National says that Labour’s underfunding by $1 billion last year of certain drugs which now need to be funded, has caused that. But patients desperate for new cancer drugs are unlikely to buy that argument.

Over the next few weeks, New Zealanders’ reaction to the 2024 Budget will become clearer. During that time, starting tomorrow, the Prime Minister, the Minister of Finance and other senior Ministers will be on the road selling their message to a variety of audiences across the country. That again shows how things have changed since 1958 – then, there were no post-Budget roadshows, nor attempts to politically sell tough economic decisions.

A Budget that largely does what its author promised it would, without surprises, is going to be hard to attack politically. Labour’s best chance will be to focus on what the Budget does not do, the lost opportunities as it sees them. The rub is, though, that while people might tell pollsters and the like they favour prefer more government spending over tax reductions, few will baulk at additional cash in their household budgets after 31 July. That is the awkward truth National is relying on, as it did in the election campaign last year, and which Labour has so far failed to successfully debunk.

This year’s Budget is reminiscent of the old Selwyn Toogood radio show, popular in 1958, “It’s in the Bag”, and his legendary catchphrase, “what will it be customers, the money or the bag?” This year, Nicola Willis has gone for the comfort of the money over the uncertainty of the bag. She and her government colleagues will be hoping voters will now do likewise.

In case you missed it, read my latest Newsroom column on www.newsroom.co.nz

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