A classic welfare-spending, rail-worshipping, Michael Cullen-style budget.

by General on May 31, 2019 at 8:30am

Joe Ascroft
Economist
New Zealand Taxpayers’ Union

Our team has just returned from the Beehive, where we attended the media and analysts’ lock-up event for the government’s new “Wellbeing Budget”. This year’s Budget was accompanied by some level of turmoil, with leaks, alleged hacks, and a (very brief) police investigation all entering the headlines throughout the week.

We’ve had two and a half hours to file through the fiscal documents and spending announcements. We now want to give you an insider’s look, before the spin on the 6pm news.

Our overall impression of this Budget is, glossy marketing aside, it is a classic welfare-spending, rail-worshipping, Michael Cullen-style budget.

You can read Jordan’s headline media statement here.

The government is holding up its big spend on mental health services as evidence of a fresh new “wellbeing” approach, but the figures tell a different story. The government is spending almost three times as much on rail ($2.14 billion / $1,175 per household) – including KiwiRail, regional rail and the Auckland City Rail Link – than on direct mental health spending ($823 million / $452 per household).

The “wellbeing” focus appears to be nothing more than a communications strategy from the government. Budget 2019 is indistinguishable from any other normal Labour Budget, with more money for welfare recipients and no room for tax relief.

The big-ticket items

KiwiRail: An additional $1 billion ($549 per household) is being allocated for KiwiRail including $375 million for new wagons and locomotives and $331 million for new track and infrastructure. As a State-Owned Enterprise, KiwiRail is expected to be profitable – but it has never paid a cent in dividends to the government. An additional billion dollars will not change reality – KiwiRail is a fundamentally unprofitable enterprise. Click here for my comments to the media.

Mental health: An extra $823 million ($452 per household) is being spent on mental health and addiction services. It has high aspirations, but few plans for judging value for money. As Scotland learned in the 1990s, a lot of extra money can go into mental health with little or no effect on measured outcomes. Click here for Louis’ comments to the media.

Venture Capital Fund: Wealthy tech entrepreneurs rejoice! The government is allocating $300 million ($164 per household) for a venture capital fund to help tech entrepreneurs who can’t convince investors or the bank to fund their projects.Worst of all, the project is being routed through the New Zealand Super Fund, which should be focused on delivering returns for future retirees. We say socialism for tech nerds is still socialism. Click here for my comments to the media.

Maori, Pasifika initiatives: Much of the spending on education, health, and even business is targeted on the basis of race, including an $80 million ($44 per household) injection for the Whanau Ora programme. We say targeting spending on race will lead to unfair and inefficient outcomes. Click here for Louis’ comments to the media.

Welfare changes: Following the release of the Welfare Expert Advisory Group’s report, the government has chosen to spend $535 million ($293 per household) to boost up the welfare system. Benefit sanctions for breaking the rules are being withdrawn and beneficiary payments will be adjusted upwards annually in line with wages, rather than inflation. Click here for my comments to the media.

As for the economy…

The economy itself is expected to track slightly weaker in coming years (forecast GDP growth is set to average 2.6 percent in the next five years) but is not projected to enter recession or enter serious headwinds. Business investment growth, however, is expected to fall off a cliff in 2019 (0.7 percent growth) compared to 2018 (6.8 percent growth), which could be a reflection of weak business confidence in response to plans for a capital gains tax and international trade sentiment. The government also still expects to meet its self-imposed Budget Responsibility Rules, including reducing net debt to below 20 percent of GDP by 2022.

Click here to read my media statement on the economic/fiscal update.