The Haps

It’s event season with ACT holding three notable ones in the next two months. This Friday’s Pink Ribbon Breakfast (raising money for the Breast Cancer Foundation) is nearly sold out. This Sunday June 1 the Party is holding a thank you to supporterswho’ve helped its leader come from political outsider to Deputy Prime Minister (just over three-quarters sold), and the party’s 2025 Rally will be held on July 13 and sales have just opened. If you enjoy Free Press, please step right up and show your support in person at these events.

Debate of the Decade

Altogether the Budget was best summed up by Damien Grant as ‘minding the welfare state.’ The last Government spent a fortune but most results got worse. Some like ACT would rather cut the spending back, but the Government is a coalition.

Instead the Government is holding its spending almost flat, and looking to manage population and inflation pressures by getting more efficiency. The Budget had $1.3 billion of extra spending, less than a one per cent increase. It managed $6.2 billion dollars of new capital spending by saving $4.9 billion elsewhere. In other words the Government has started doing what everyone else has to, saving somewhere else when it wants to pay for something new.

A lot of this spending has ACT’s fingerprints on it. Far more on defence, we will reach 2 per cent of GDP about as fast as any military can grow. Far more on prison space, locking up the worst offenders is the best money taxpayers will ever spend. There is also more for health and education, which have been stretched.

So where’s the debate of the decade in all this? Interest on debt is now a major expense in its own right, at $9 billion. Interest costs more than Police and Prisons combined, or about as much as Primary, Intermediate, and Secondary schooling.

That’s because the debt is nearly $200 billion, and welfare is over $50 billion a year. Nearly half of that is pensions, which rise by a billion and a half each year as more people retire and live longer. Put it another way: $50 billion is nearly $10,000 per person. If you’re in a family of four that is not getting $40,000 of taxpayer cash a year, you are below average.

Health is up $13 billion in seven years, but results seem worse. We could go on, but the point is the Government is currently borrowing $14.7 billion a year, and its plan to borrow only $3 billion in four years’ time depends on nothing going wrong for four years. What we’re doing is not sustainable.

The options are either:

1. Tax more, such as the Greens’ and Labour’s wealth or capital gains tax
2. Just keep borrowing and see what happens (some people genuinely think this is the answer)
3. Spend less.

This is going to be one helluva fight. If we do nothing, it is a matter of time before the left gets back in and defaults to option 1. More taxes that are really tall poppy syndrome in tax law. Your problems are caused by others’ successes, the story goes, and your solution is to take their money. It will deaden our society from the inside out.

Option 2 is the road to some sort of banana republic status. The problem is some would default to it through inaction, and some others think using debt is actually an enlightened idea. The problem is the spiral that goes like this:

Investors lose faith in the New Zealand Government paying back its bonds, so they demand higher interest rates to buy its bonds. That makes it harder to pay. The spiral that so many South American and South East Asian countries have experienced.

If you’re not keen on new taxes, or the Government going broke, you’re with us. The next five years of New Zealand politics will be in large part about which of the three options to choose. The Greens have set out their stall. Labour can’t decide, but we predict they’ll campaign on more taxes. Te Pāti Māori wouldn’t understand this newsletter.

The coalition hasn’t seriously reduced spending. Even Grant Robertson was spending far less as a percentage of GDP (28%) than the current Government (33%). That five-point difference equates to about $23 billion more.

That leaves ACT as the only party unashamedly promoting the only option left. If the Government’s going to balance its budget without more taxes, it’ll need to be smaller and more efficient. There’s three ways we can think of to do that.

One is to do the same stuff more efficiently. David Seymour halved the price of school lunches, and now they’re getting 100 per cent on time delivery with better meals. The number of Ministers, portfolios and departments is too many, leaving everybody and nobody in charge of everything and nothing. It should be simplified. The number of public servants hasn’t really budged, the head counts should be reduced. The Government has around 800 boards. No one person in the entire world knows what they all do. The Government could maintain its service levels with a smaller, simpler structure.

Another way is to transfer less cash. We can keep paying Superannuation at 65 but Australia, the U.S., U.K., Germany, Ireland, Italy, Spain are all increasing their ages. We will be left alongside France, Greece, and other places of questionable economic and fiscal management. We’ll also be paying more for Superannuation than anything else except healthcare. Young people might decide they don’t want to stick around and pay for it. Ditto the fact that one-in-six working-aged New Zealanders are on a benefit.

Then there’s ownership. The Government has $600 billion, over half a trillion dollars, in assets. Most of them deliver negligible returns, but the taxpayer pays interest on $200 billion of debt. Is that sensible?

Those are the choices. More tax, more debt, or a smaller, more efficient Government that splashes less cash. How this debate resolves in the next two electoral cycles will probably decide if New Zealand is a big Singapore, or a big Samoa.

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