Economists agreeing

Dr Eric Crampton
Insights Newsletter
23 February, 2024

There was remarkable agreement at the New Zealand Economics Forum last week.

Waikato University’s Forum is now an annual feature of the policy calendar, barring Covid interruptions.

Two very definite themes ran through this year’s sessions.

First, fiscal consolidation. Running deficits during a downturn or as temporary response to a crisis is one thing. But structural deficits, with ongoing spending at levels above expected revenue, are fiscally irresponsible. Fiscal consolidation means getting the books back in order.

A panel of monetary policy experts, including former Reserve Bank Deputy Governor Grant Spencer, the Initiative’s Bryce Wilkinson, and ANZ economist Henry Russell, were asked what one piece of advice they’d provide to the government. Spencer and Russell said fiscal consolidation. Bryce added price stability.

Treasury Secretary McLiesh  also highlighted the structural deficit, suggesting a combination of tax increases and spending reductions as solution.

But the conference’s second big theme was on value-for-money in government spending.

Impact Lab’s Maria English talked about the value NGOs can provide when their work is properly assessed. Whānau Ora’s Merepeka Raukawa-Tait described traditional government social spending as a “big black hole”. She challenged the government to stop wasting money on underperforming agencies and instead fund providers delivering results.

Even the Council of Trade Unions’ Craig Rennie said that successful policy is often about “letting the losers [failing policies] go.” That requires rigorous assessment of whether programmes deliver value for money. But Rennie pointed to the Auditor General’s view on the quality of that reporting: it has “a lot of rubbish”.

So far so good. If the government is serious about returning to the investment approach’s rigorous assessment, it will have support in doing so.

Remember that the last time that the government’s books balanced, core government spending amounted to $2.80 of every $10 of total national output, and core tax revenue was $2.79 for every $10.

Back in December, Treasury projected that core tax revenue would be $2.91 for every $10 of total national output – a substantial increase. But core government spending would be $3.34.

National inherited a substantial structural deficit not because of reductions in revenue but because of a massive increase in spending.

A Treasury that has overseen “rubbish” reporting on the value of spending while failing in encouraging fiscal discipline should be more reluctant to recommend tax increases to fund black holes.

A stronger focus on value-for-money could help with fiscal consolidation.

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