5. Bryce Edwards: Don’t believe the Budget hype

It could be a truly big and bold Budget, but Grant Robertson's conservative fiscal instincts and Labour's Budget Responsibility Rules make that unlikely. Photo: Lynn Grieveson

Dr Bryce Edwards of Victoria University forecasts some of the spin likely to accompany Thursday’s Budget. He argues we should be careful not to believe the hype, and the Government shouldn’t be given a free pass if their Budget isn’t up to dealing with the problems facing the country.

Every year at Budget time Government spin-doctors carefully craft the lines politicians use to sell their policies, and this year is no different. Below are some of the Government lines to watch out for.

“This is a big and bold Budget”

Over the last couple of weeks there has been a deliberate campaign to lower expectations around tomorrow’s Budget. But on the day, the message will take on a very different tone – the Government will no longer be downplaying its Budget, but emphasising how much of a big deal it is.

There will be increased expenditure in some areas – especially in health, housing and education. And the numbers will be massaged and exaggerated in any way they can. In fact, Labour has already picked up on National’s trick of quadrupling the increased spending numbers (on the basis of the spending going up for the next four years), which makes the increases seem more impressive.

Overall, however, Labour’s spending levels will still be broadly in line with National's – especially once inflation, growth, and population increase are taken into account. And we know that Labour’s self-imposed Budget Responsibility Rules, together with its commitment not to introduce new taxes, means that this year’s Budget is not likely to deliver anything particularly big or bold.

“A transformational Budget”

The word “transformational” is used a lot by the new Government and its prime minister. They talk a big game but, so far, everything is pointing to economic transformation being off the agenda, due to the conservative fiscal instincts of Grant Robertson and his colleagues.

It’s also worth keeping in mind that it’s normally the first Budget after an election that is most transformational, and so this might be as radical as it gets.

“Underfunding is being addressed”

The new Government makes much of the underfunding of public services under National over the last decade, and its intention to reverse that underfunding. The big question is whether this underfunding will be entirely, or only partially, reversed in this Budget.

The big sectors of health and education will receive boosts in spending, but not nearly enough to get them back to the levels seen before the global financial crisis. And it is these levels that Labour used to benchmark the National government’s spending during its nine years in office. Using a “spending track” to forecast how much increased spending was needed in areas like health and education if the Budgets were to keep pace, National was judged by Labour to be underfunding these areas.

Labour now needs to be judged by the same measure. In health, for example, Labour previously argued that the sector was being underfunded by $1.8b. So Labour’s own funding increase is going to have to be significantly above that figure for the Government to avoid being accused of underfunding health itself.

In fact, the CTU released its own calculations yesterday to show that health funding needs an injection of $2.7b to make up for shortfalls in previous years. And the $800m-plus boost that Labour is likely to give to health will barely be enough to make up for inflation, population increases, etc, over the last year – i.e. the increased health budget from Labour will only keep the health system “standing still”.

Similarly, according to the tertiary education union, the tertiary education sector is now underfunded by $3.7b. Labour needs to wear that underfunding label, too.

“The Government is limited in its choices”

Just because the last government underfunded public services does not mean that the Labour-led government has to do the same. This government has choices – just as Labour used to argue that National had choices and was therefore choosing to underfund public services such as health and education. But now that they are in government – and the underfunding will continue – Labour will employ the “no choice” argument.

There’s absolutely nothing stopping a large increase in funding for public services. Grant Robertson has the choice to raise taxes, borrow more money, and to reprioritise spending from anywhere else (Defence, for example). He is simply choosing not to.

“Labour has inherited a mess”

We will continue to hear that this government has inherited a worse mess than they expected. We will be told that underfunding will take a long time to turn around. The political left – and, indeed, those negatively affected by austerity funding – shouldn’t accept such arguments. Truly transformational governments take bold actions – not just tinker and find excuses for sticking to the status quo.

In reality, the Labour-led Government has the ability to make big changes right now if it really wants to. There’s more than an element of truth in what National says about having handed over to Labour the ability to afford to spend whatever they need to. For example, by underfunding of various public services, National has kept debt to very low levels. For every billion dollars they have forgone in health spending or classroom construction, that same money is still available – and Labour can easily access it.

“Laying the foundations for transformation”

Whenever a government talks about “laying the foundations” for future government activity they are trying to paint very small progress as being more important than it really is. In this case, the Labour-led Government will be at pains to communicate that what they are delivering should only be seen as a start – i.e. “don’t judge us too harshly for only doing very little”. They want us to believe that they “moving in the right direction”, and that it simply “takes time” to deliver.

We should be especially wary of promises of “jam tomorrow, but never today”. In fact, governments that put off reform to a future time don’t tend to ever get around to doing so. Its early on in a government’s life that it is most likely to carry out meaningful change.

The danger in too quickly accepting this excuse for inaction and timidity is that the heat will be taken out of the issue, and the pressure for more extensive reform will melt away.

“Kiwis don’t want a big spend up”

The Budget Responsibility Rules and Labour’s pledge not to introduce new taxes were made in 2017 in order to make the election campaign easier for Labour by neutralising a traditional “spendthrift” attack line, and make up for the fact that they hadn’t come up with any policies on tax. It meant that they wouldn’t have to convince anyone of the need for progressive taxation or capital gains taxes. It was the easy way out, despite the public being very open to such changes.

The government continues to justify its very conservative fiscal policies by reference to the nebulous idea that the public expect Grant Robertson to be frugal. In fact, last week a UMR survey, commissioned by the CTU, showed that the public is much more progressive than the government:
• 65 percent support increased taxes to keep public services like hospitals, schools and transport running at their current levels;
• 66 percent support a fifth tax bracket being introduced for those earning well over $70,000;
• 87 percent support the idea of removing tax on the first few thousand dollars of personal income; and
• 92 percent say public services are in need of increased funding from the Government.

This survey evidence should be very uncomfortable reading for the Labour Party. It suggests that this year’s Budget could be big and bold. Grant Robertson could be delivering the first leftwing Budget for decades and the public would be supportive of this. Unfortunately, we won’t get this because we have a Labour Party that is much more in tune with the mood of the National Party and the boardrooms than it is with the mood of the public.