Nicola Willis’ return-to-surplus promise echoes repeat surplus forecasts – Richard Prebble
Nicola Willis is determined never to deliver a Mother of All Budgets.
She has succeeded.
Ruth Richardson’s legacy was putting New Zealand’s finances on a sound footing for two decades.
Willis’ legacy is three Budgets that increased spending, increased borrowing and increased deficits.
Yet this Budget promises New Zealand is on a path back to surplus.
Every Finance Minister makes that promise. We have heard it before.
Grant Robertson’s Budgets delivered surpluses in 2018 and 2019, before going into deficit during the Covid era.
After Covid, his Budgets forecast a return to surplus in the mid-2020s.
But we are not there yet.
The only thing that changed from one Budget to the next was the date that the surplus was supposed to arrive.
Willis makes the same promise.
Taken together, the Budgets delivered by Robertson and Willis since the pandemic have produced cumulative deficits exceeding $70 billion.
That is an extraordinary amount of borrowed money for a country of five million or so people.
The economy has had so much sugar, it is becoming diabetic.
Yet every Finance Minister points to Treasury forecasts showing the books eventually returning to balance.
Treasury forecasts are widely misunderstood.
Treasury can forecast next year’s spending with reasonable confidence because Government policy is largely known.
Forecasting four years ahead is different. Future deficits depend on decisions ministers have not yet made.
Treasury asks ministers whether spending will continue to grow or whether restraint will be exercised.
The answer is always the same. Ministers promise restraint.
No Finance Minister tells Treasury spending will continue growing unchecked. Treasury therefore incorporates those assurances into its forecasts. The result is predictable.
Future surpluses are always just around the corner. The corner keeps moving.
Four years ago, Treasury forecast a return to surplus within the forecast period.
Today, Treasury is still forecasting a return to surplus within the forecast period.
Restraint tomorrow is politically easy. Restraint today is politically painful.
Tomorrow’s restraint requires no angry lobby groups, disappointed departments or difficult Cabinet decisions.
Today’s restraint does. That is why governments of every colour prefer restraint tomorrow.
What is different this year is that Willis is promising heroic restraint.
Much of the projected improvement comes from a promise to reduce the size of the public service.
National came to office promising to shrink the bureaucracy. After two-and-a-half years, the Public Service still employs about 14,000 more people than when the Key-English Government left office – around 3000-4000 fewer than when Labour left office.
Having failed to shrink the bureaucracy today, the Government now promises artificial intelligence (AI) will help drive productivity gains that will contribute to it shrinking by 8700 tomorrow.
Treasury must accept ministerial assurances.
Indeed, Treasury has brought the surplus date forward by a year.
The civil servants have even organised protests before a single job has gone.
When I was a lawyer in Fiji, a client told me about his village. The villagers decided to build a church with beautiful stained-glass windows.
The villagers then worried that their naughty children would break the windows.
To stop the windows from being broken, the children were lined up and given a hiding. My client was one of them.
The church was never built.
Perhaps AI will reduce the size of government. Perhaps it will not.
Computers were supposed to make government smaller. Instead, they often enabled governments to undertake more activities.
When I was Minister of Police, officials promoted Incis as a computer system that would revolutionise policing and slash back-office costs.
I thought Incis was too complex and likely to fail. A subsequent minister did give approval.
More than $100 million later, the project was scrapped. Not one back-office job was eliminated.
The bureaucracy has had many computer project failures.
We should be sceptical of claims that technology will result in dramatic reductions in back-office staff.
AI may improve productivity. It may also allow departments to perform tasks that today are impossible.
Technology can expand government just as easily as it can shrink it. In my view, there is only one proven way to reduce the size of government. Stop doing things.
Governments are remarkably reluctant to do that.
For years, New Zealand governments have used borrowed money to postpone difficult choices.
The left’s answer, higher taxes, cannot be right. Central and local government already consume about 40% of the economy.
Every Budget promises a return to surplus. Only the date changes.
After seven years of deficits and more than $100 billion of borrowing, New Zealanders are entitled to ask a simple question.
If the surplus is always four years away, how can it ever arrive?
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