John Key MP

National Party Finance Spokesman

22 June 2005

Economist damages his own credibility

"Peter Harris' report 'The Myth of the Exploding Public Sector' is a highly slanted document that uses selective data, and when properly analysed is found sadly wanting," says National Party Finance spokesman John Key.

"His mumbo jumbo might convince Michael Cullen but working New Zealanders paying the bills and watching the rorts won't buy it."

- Harris: The size of the public sector in NZ is smaller than other OECD countries

- Key: NZ should measure itself against high-growth small and agile economies where the public sector is considerably smaller. Many of these countries are not in the OECD.

- Harris: In 1999 the relative size of the state in New Zealand was above the OECD average; by 2004 it was significantly below that average.

- Key: There's no weighting in this measurement. In other words, the US and Iceland get the same weighting under this measurement. When adjusted for population, or GDP, New Zealand does not have a small public sector relative to other Anglo-Saxon countries.

- Harris: In 1999, central government spending was 33.3% of GDP: it is now 30.1%.

- Key: He's using the wrong base. Mr Harris should use the 2000 base, which was 31.4%. For a comparative analysis, non-discretionary spending such as welfare benefits should be removed. Once this is done it shows government spending has actually been rising, but more importantly, the future trajectory of spending under Labour is for a rapid increase.

- Harris: In 1999 gross Crown debt was 35.4% of GDP and is now 25.3%.

- Key: In nominal terms Labour has repaid only around $1 billion in gross debt. The ratio's changed significantly because the economy has grown.

"New Zealand should be following OECD advice. Currently 95% of government spending is not evaluated. There is a lack of accountability and a lack of evaluation.

"It is not credible, when the overwhelming majority of expenditure is not reviewed, to claim that all existing spending is of good quality.

"In recent months Labour has received numerous documents from Treasury that confirm their concerns in this area.

"Frankly, I think Treasury is more reliable on this stuff than Peter Harris," says Mr Key.

Ends

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