Upton-on-line June 16th

Budget Blues

The Government seems to have reconciled itself to a glum reception from the business sector to its first Budget. This is an ignominious defeat because the Government has, up until now, been comforting itself with hopes that the Budget would change everything.

Think back to earlier this year. The first signs of business alarm were met with Dr Cullen’s explanation that the Government was suffering from the fact that it had done all its unpopular anti-business work (ACC nationalisation, Employment Relations Bill introduction, etc) early on in its term. An initial coolness was inevitable. When the pro-business measures in the Budget were fully digested, things would be different.

Then surveys showed a nosedive in confidence. This time the fault was hysterical business commentators talking themselves into a 'blue funk'. The surveys didn’t match the growth data so it was all in people’s minds. Even so, theatrical measures were adopted (viz. the smoked salmon offensive) to convince business that the Government was listening. This was described as Bridge Building (Phase One). Nothing much was built, but a few scapegoats were hurled into the river. Changes (unspecified) to the Employment Relations Bill were talked about and the nation was treated to a ritual humiliation of the Alliance as its shopping list was ceremoniously burnt on the altar.

Then the Budget was read. It had a little bit of extra money for R&D, another $100 million for Jim Anderton’s toy Ministry of Economic Development and a promise of 'co-ordination' and 'continuous monitoring'. The rest was a gigantic social spend up. Business was unimpressed, leading Helen Clark to initiate Bridge Building (Phase Two) in her address to Auckland business leaders. The difference with phase one is that the PM has challenged business people to commence construction on their side of the river. Upton-on-line considers it has about as much chance of being built as the Transmission Gully by-pass or the Mercer to Cambridge expressway.

Where has the Government Gone Wrong?

The Government is fast learning that the business sector judges governments by what they do, not what they say. Government spin doctors believed that they could simply copy Tony Blair and use the language which they thought business leaders wanted to hear. The Beehive Thesaurus was mined for every known synonym for the word conservative. Economic policy has been described by Ministers as prudent, sound, sensible, pragmatic, restrained, careful, and cautious – even orthodox in one reckless moment. The Government seems to believe that it has only to utter certain magic words and people will believe in it.

But as Bill English has shrewdly noted, the Government has an attitude problem. It doesn’t know how to communicate with business and it has virtually no people with business experience within its ranks. In truth, it came to power saying that business had had it too good for too long and it was going to even things up. First impressions last longest. It’s too late now to say (as the Prime Minister did today) that Government and Business need one another. Very simply, this Government needs business: business does not need this Government.

And in any case, what business community in the world would warm to a Finance Minister who says “I would dearly have liked to have spent more on many deserving projects…” That will simply be read as: “I’ll do it when the pressure comes on”.

Looking Backwards with a Vengeance

The Government’s critics have accused it of turning the clock back. But that has now been officially confirmed. Dr Cullen cited the 1972 Royal Commission on Social Policy with approval as the Government’s touchstone. Readers who are old enough will recall that that was the watershed period when, just as our terms of trade were starting to unravel, New Zealand embarked on a raft of idealistic new welfare initiatives – ACC, the DPB and so on – that changed forever the levels of dependency in our society.

The Finance Minister’s foray into social policy made fashionable reference to Communitarian political theory in asserting the existence of “rights of citizenship”. He said:

“Honouring rights of citizenship is a fundamental obligation of governments. In meeting that obligation governments provide basic entitlements, and do not merely step in where markets fail.”

The only trouble is that no-one has ever found the mountain, let alone the stone tablets, on which these rights are inscribed. All we know is that they always go further than the money available. As upton-on-line listened to Morning Report this morning, he heard a succession of lobby groups being interviewed about what they’d taken from the lucky dip. In each case it was described as “a start” or “only a beginning”. The shopping list is endless.

Nationalising Savings

The most amazing – and sinister – insight into the Government’s thinking is the way the Government views your taxes. The burgeoning tax take that a growing economy is generating is furnishing the government with big fiscal surpluses. “Those surpluses represent increased national savings” Dr Cullen intoned. Increased savings? It’s just other people’s money that the Government has confiscated – money that they could have perfectly well saved and invested for themselves.

This is all part of Dr Cullen’s grand superannuation fund which will see the Government become the principle investor in the economy (with all the skill and judgement that politically-run investment funds have shown in the past).

There is no sense anywhere that hard working kiwis made the dough the Minister is playing with. “The money we are spending is money we have raised” he said, as though he’d just floated a new venture. The money he’s spending is money other people have earned and he has taken!

There are not many New Zealanders who regard taxes as a form of saving. The next step, no doubt, will be to describe benefits as dividends.

Plenty for the Bureaucracy

Upton-on-line has long warned that parts of the public service are under-resourced after a decade of fiscal stringency. But some of the sums being thrown at the bureaucracy are wondrous. There’s going to be $3.5 million allocated to Mr Anderton’s Ministry of Economic Development to provide “advice on economic development”. We can be sure that eager young honours graduates will discover all sorts of business possibilities that dumb New Zealanders just couldn’t see for themselves.

Te Puni Kokiri gets an extra $12 million over the next four years “to monitor the effectiveness of social policy programmes for Maori”. If the money is really spent providing a cold, hard assessment of just what taxpayers are getting for the millions upon millions they are spending, it could be money well spent. But upton-on-line has rarely seen internal agencies do more than perpetuate their own existence. Why not spend the money with external researchers who aren’t under ministerial orders? Which brings us to

Closing the Gaps

This newsletter is not going to bag this priority – yet, at any rate. Most New Zealanders would support programmes designed to short-circuit some of the inter-generational failure that blights some Maori communities in particular. The Government is right to be deeply concerned by some of the malaise that afflicts our social fabric.

The real question is whether they’re on the right track or just tipping money into a hopper. These are notoriously difficult problems and there is little evidence that the Government has a really coherent view about how it is going to solve them. A nice round $50 million is parked in a special fund for projects yet to be dreamed up. Taxpayers should insist that the most rigorous outcome measures are developed before any money is spent so that success or failure can be objectively gauged. The Government has to be prepared to hold itself accountable in a measureable way. Otherwise we simply be told that indifferent performance was the result of a lack of money.

So Does Spending Money Win Votes?

This is the $5.9 billion question. Upton-on-line’s answer is – some, but not enough.

New Zealand has changed in the last 15 years. The cotton wool world of the 1945-84 period has gone forever. No-one believes that the Government creates the nation’s wealth. People are much less enamoured of what governments manage to achieve with all the taxes they gather. The numbers are so large that they are meaningless. There’s no sense of what $1 million extra would provide, let alone $100 million.

National spent the 1990s piling money into health and education. The output rose sharply. But it was taken for granted the day after it was spent.

Social expectations are without limit: Governments that set out to meet them are bound to disappoint.

Upton-on-line is on safari in deepest Europe in search of strange new animals on the sustainable development circuit. Field reports will resume on his return.

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