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Is Government Slash And Burn Necessary?

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Chris Ford
Chris Ford

Today's better than forecast deficit numbers beg the question - is all this slash and burn necessary from Bill English?

The $4.51 billion Crown deficit is nearly $1 billion better than forecast at Budget time. Apparently this was due to increased corporate GST revenue and decreased government expenditure.

You do have to look very closely at the second reason - reduced government expenditure. Over the last ten months since Bill English's first Budget, National has slashed and burned its way through public expenditure. Ample evidence of this is all around us with tertiary institutions constraining their spending, the Department of Conservation looking at ways to increase revenue through partnerships with the private sector, cuts to health and disability support entitlements, and the cultural vandalism currently being visited upon Radio New Zealand.

Very clearly the deficit is beginning to reduce, in part, due to natural economic factors such as the return to growth. In the last three months, I have noticed a small upswing in economic activity which has fed into increased revenue for the government. This is a positive factor and being a believer in Keynesian economics, that's why I feel that the deficit should be permitted to naturally reduce through the revenue side and then balance itself out over the economic cycle.

That's why I support the Council of Trade Unions (CTU) call for more stimulus to be added. There is room for this as well as a good case for it. While growth is returning, the unemployment queues continue to lengthen and with it the social costs implicit within that. In other words, would it not be better to provide an unemployed worker with a publicly funded job doing important work such as, for example, environmental clean ups than an unemployment benefit?

At the same time, National could make more room for increases in public spending so that DOC doesn't have to consider prostituting our conservation estate (as Gerry Brownlee as Energy Minister is already intent on doing), Radio New Zealand doesn't have to consider cuts to programming, and health and disability support services don't have to make a choice between cutting home help services or elective surgery.

But the Nats wouldn't be ideologically predisposed to increasing public spending. Whilst using the convenient fig leaf of the need to borrow $250 million extra per week to cover deficit spending, they really want to constrain public spending in order to achieve one important ideological aim - the minimalisation of the role of the state. And what does that enable? You guessed it, tax cuts for National and Act's wealthy mates.

Therefore, through cutting public spending, they are just laying the ideological groundwork for both tax and public spending cuts through running an intentional structural deficit in order to cover their tracks. This tool has been used by New Right governments in other Western nations who have wanted to achieve similar aims. Ultimately, the Nats and Act will enact privatisation through stealth as cash strapped government agencies contract out more previously core activities to the private sector.

That's why the Government can ideologically argue the necessity for slash and burn - its desire to see the private sector drive growth. But in most Western nations, particularly in the highly taxed and still wealthy Scandanavian nations, the state has a primary role in driving economic and social development. Adhering to a slash and burn approach will create social deficits as well in much the way that Rogernomics and Ruthenasia did back in the 1980s and 1990s. Increased poverty/inequality, crime, hospitalisations and educational underachievement all created a drag on our economic and social performance for two decades and all for the sake of cutting a few dollars here and there to give tax cuts to the wealthiest.

Sadly though we are heading down that road again. For New Zealand, it will mean that we once again be on a road to nowhere.

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