Sludge Report #150
Budget! What Budget?
If last year’s budget was boring, this years is practically invisible. Sure, it’s more than a foot thick (including
Supplementaries and Statements of Intent from Crown Entities) but, nothing much, it seems to get your teeth into.
Newspaper headline writers are thus going to have a hard time tomorrow.
In addition to being sort of vacuous the other main characteristic of this year’s budget is it's incomprehensibility.
Fortunately however we today have had the benefit of an oral explanation from Finance Minister Michael Cullen of the key
points hence, I can now report to you what you mainly need to know about this year’s budget.
1. The surplus is not $4 billion, that is the OBERAC, the real operating surplus is actually 1.4 billion and once you
factor in the Super Fund contributions (which don’t count because they are capital – but should Dr Cullen reckons) then
the Crown was arguably in deficit in the financial year just passed.
2. But, that doesn’t matter because:
a) the OBERAC (invented by Dr Cullen last year) is what we are concentrating from hear on in and is probably what you
will see on the front page tomorrow, and;
b) the main reason for decimation of the operating surplus is something called, “Discount Rates Used In Assumptions By
The ACC and the GSF”, which is something that nobody without a tertiary qualification in accounting is supposed to
3. For future reference OBERAC stands for "operating balance excluding revaluations and accounting changes".
3. Dr Cullen is not using this year's budget to “hijack” economic policy, nor to turn life as we know it upside down,
and this is why there are no interesting announcements in the budget about the RMA.
5. All the interesting stuff (34 million for the America’s Cup) has already been announced.
6. While there is not a lot of extra spending in the official announcement parts of the budget, there is a whole heap of
extra spending due to “demographic and forecast” changes, and that is why the Government is spending so much more this
year than last year, in fact $5.6 billion more.
7. While there are big surpluses forecast for coming years, Dr Cullen doesn’t know if these are structural or cyclical,
and therefore we can’t start planning to spend them (or planning tax cuts) yet.
8. Even if the big surpluses in future years do arrive, most of the dosh is going to be stashed away for a rainy day in
the New Zealand Superfund anyway.
9. At best – i.e. if we are lucky – then next year Dr Cullen might throw caution to the wind and spend an extra $400
million more than presently forecast. To put this in perspective this is the present annual increase in health
expenditure programmed forward.
10. And if this does happen – fingers crossed - then changes to Family Support and mechanisms to help people move into
work are pencilled in Dr Cullen's diary, not tax-cut’s.
11. While we have seen US and UK Governments cutting taxes and spending up large (respectively) and thereby moving from
strong to weak fiscal positions, NZ has no intention of following the same path.
And so there you have it, NZ’s financial situation and fiscal intentions in a nutshell.
It would be nice at this point to be able to provide a list of the highlights from the several thousand words that make
up the internals of this years budget.
However there are none bar the forementioned intention to punt $30 million on a black boat. There are 50 new policemen
for Auckland, $40 million to collect better statistics, but Sludge is uncertain as to whether that counts as a
Suffice to say that when trawling through the numerous statements that accompany the announcement you will find lots of
largely sensible looking things planned by the government. Nothing flashy or expensive mind, and generally speaking the
sort of things we have come to expect from this government and its “innovation framework”. This could be called a
managers budget rather than a political budget.
For example of more of the same, Jim Anderton and Pete Hodgson, have a plan, and some new funds, which will probably
help us to get upright on the Knowledge Wave. Also, as usual a fair bit of money is to be spent fixing up tertiary
education. Again. Meanwhile, as expected, most of the big bikkies are going into health, again. And with some of the
crumbs NZ culture is to be further enhanced by increased spending on NZ On Air, Radio NZ and smoothing the way for TVNZ
to fulfill its charter obligations.
And finally a wee mystery – which serves as an example of the pitfalls behind any serious discussion of this budget in
particular, and probably any set of national financial statements in general.
While in theory the Government is supposed to be only expanding spending at a leisurely $1 billion a year, in actual
fact even with falling interest rates and record levels of employment the Government managed to spend (according to its
GAAP accounts) $2.7 billion more in the financial year to June 30 2003 than it expected to, and a fullsome $5.6 billion
more than it did the previous financial year.
Now much of this, as explained by Dr Cullen, is as a result of “discount” rate changes and their impact on the GSF and
the ACC liabilities ($2.68 billion he says). But digging a bit deeper into the GAAP series you find that Government
"personnel expenses" have increased from $11.1 billion in 2001-02 to $13.9 billion in 2002-03.
How come public servants are getting 20% plus more. At the time of publication of this commentary a treasury boffin was
working on explaining the change for Scoop. A preliminary guess was that it is due to “reclassification”. Watch this
Anti©opyright Sludge 2003.