Opposition plan to rein in debt a stretch at best


In 1991, the then Minister of Finance Ruth Richardson presented probably the most infamous fiscal budget in New Zealand history. It was called the Mother of all Budgets. Controversial among even her colleagues to the point that it led to notable members of her National Party resigning from Parliament; from the National Party, the social service cuts that the budget enacted were some of the most savage in New Zealand history.

30 years later, with COVID19 afflicting the world and New Zealand, having managed to largely freed itself from the pandemic, trying to get its house back in order, National Party Finance spokesperson Paul Goldsmith wants another Ruthanasia-esque slash and burn.

I find it quite striking that Mr Goldsmith is so keen on this plan. This is particularly so when one considers that the same party has just indicated it is not keen on the idea of a health system overhaul, which would among other things;

  1. Better allocate funding for projects and resources
  2. Improve efficiency of monies distribution throughout the system
  3. Provide greater accountability to the Government and taxpayer

There are other Government ministries and departments that could do with an overhaul of how they work. One is Ministry of Social Development. I have described the issues facing them in various articles here, but it needs to be said that the legal framework under which M.S.D.’s umbrella agencies such as Study Link, Work and Income New Zealand, Child Youth and Farmily Service need to be reviewed as well.

There is more to achieving savings though, than simply cutting expenditure. If the investment in appropriate services by the Government is not adequate, this can create additional unintended issues by locking up monies by throttling those services. Simple as it may sound, the lack of willingness by politicians to understand this is really quite incredible.

But I do not think anyone should be dreadfully surprised that National are trying failed methods for the umpteenth time to lower debt. The Government of Prime Minister John Key promised “a brighter future” for New Zealanders at large. Whilst it is true that this was certainly the case for the rich top 3-5% of New Zealanders, the vast majority of New Zealanders saw little or no meaningful improvement in their financial situations.

The $80 billion in cuts being proposed by National are – to put it very mildly – deep. Their Treasury spokesperson Paul Goldsmith suggested that within one decade his party would seek to reduce debt to below 30% of Gross Domestic Product.

To achieve that National have two choices:

  • Significant tax increases, or – more likely;
  • Significant cuts to public services across the board

Based on their philosophical stand point and strong aversion to increasing taxes, massive cuts across the board to public services are far more likely. But is it possible that those cuts will be so deep as to cause lasting damage to health, social welfare, education, policing, housing and other areas with a social focus?

Quite.

The last time such cuts were made, they were in the Mother of All Budgets presented by Mrs Richardson in 1991. Ruthanasia as it was crudely named by social activists at the time, was a systematic demolition in a single budget in 1991 of a solidly constructed welfare state. Social benefits were cut across the board; user pays were introduced for many requirements in hospitals and schools; state housing was handed over to companies under Government contract in all but name.

My generation of New Zealanders were in primary and intermediate school when these were announced. Having seen the intergenerational social effects of the framework of the welfare state being so deliberately assaulted, I think the push back would be substantial from both centrist and leftist New Zealand.

But am I sure that National cares?

No.

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