It's the spending, stupid!

Dr Bryce Wilkinson
Insights Newsletter
15 September, 2023

That is the sign all Ministers of Finance should have on their desk. 

Treasury’s latest pre-election economic and fiscal update this week forecast cumulative fiscal deficits of $17 billion for the four years ended June 2027.

These forecasts are far too optimistic. Cameron Bagrie spelt this out in a BusinessDesk article on Wednesday.

Before the general election in 2017 the Treasury was forecasting cumulative fiscal surpluses of $24 billion for the four years ended June 2022.

It only took two years for the Labour-led government to prove its 2017 Fiscal Plan was make-believe. The Treasury’s December 2019 forecasts showed that Labour’s planned $10.8 billion spending increase in the four years to June 2022 had become $30.1 billion.

Labour’s planned cumulative fiscal surpluses for the same four years had dropped from $22 billion to $8 billion.

Many CEOs would be fired for that excess.

Much worse was to come for future taxpayers. The government used Covid-19 to permanently increase projected spending very substantially.

For example, Treasury is now forecasting core Crown spending excluding, finance costs, to be $134 billion in the year ended June 2025. That is $9 billion higher, inflation differential adjusted, than the pre-Covid December 2019 updated projection.

Forecast finance costs in that year are higher by $6 billion. This is because of higher debt and interest rates than were forecast in 2019.

The extra cost for taxpayers in 2024-25 is around $15 billion, or $7,500 per household.

The extra annual costs decline slowly from there, but only if you believe the forecasts.

Government spending is now running at about $70,000 per household per year. It is essential for community wellbeing that spending at this level is rigorously justified.

Most government spending provides a private benefit to the recipient.

Why not just let them spend more of their own money?

Too often, there is no clarity about what the answer is to this question. That impairs accountability.

Poor accountability guarantees waste. People know their own needs best.

Claims that tax cuts cannot be responsible treat all existing and planned spending as sacrosanct.  There is no basis for such an assumption. Read the Auditor-General’s scathing assessments.

What is needed is a Minister of Finance who takes responsibility for imposing much greater accountability on existing and new spending programmes.

An independent fiscal council could help, too.

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