The Deficit Diaries: Six years of red

Dr Oliver Hartwich
Dr Bryce Wilkinson
26 September, 2023

In this short research note, we have focused on the fiscal performance of the Sixth Labour-led Government. We have pointed out that much of our current predicament comes down to unrealistic plans, lack of commitment to stated intentions, and not enough rigour in fiscal management.

But for most ordinary New Zealanders, the Government’s poor financial record will not be of greatest concern. Rather than worrying about PREFUs, OBEGAL, and net Core Crown debt, they will be concerned about the poor outcomes of Government spending.

That is because they can see these poor outcomes every day, for example, in the sad state of our hospitals, schools and universities. Sometimes they can even feel them when they are driving over pothole-riddled streets.

Serious problems are now occurring in every major government sector. Crime, immigration, education, hospitals, homelessness, water infrastructure, transport, and welfare dependency are frequently in the news for all the wrong reasons.

Figure 7: The scale of core Crown Spending 1963-2024

It may be hard for New Zealanders to understand that these problems are not caused by a Government that is spending too little but by a Government that is spending too much, poorly.

Figure 7 shows that, by historical standards, our current spending levels are not low. This fiscal year, Government operating spending is running at 33.5% of GDP. In December 2017, Treasury was forecasting it would be only 27.6% of GDP.

That difference of 6% of GDP is massive. The outcomes are poor, yet the calls to increase spending ever more are inexhaustible. Sanity requires much greater attention to value-for-money.

What New Zealand needs goes beyond lower debt, tax burdens and spending. New Zealand needs better spending, better outcomes, better value for money, and New Zealand needs better policies more generally. We need policies that allow households and businesses to make better choices.

As mentioned at the outset, The New Zealand Initiative has compiled a list of such policies in our recently published report Prescriptions for Prosperity: Briefing to the Incoming Government which you can read here.

What New Zealanders must first understand is that the coming years will not be a time for big spending commitments or generous electoral giveaways. The coming years, unfortunately, must be focussed on cleaning up the fiscal, social and economic messes left behind by the current Government.

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