Wafer-thin socialism in nouvelle cuisine budget

It was obviously a budget for political foodies.

As pointed out by Christ Trotter, Liam Dann predicted (or advised Bill English to deliver) a ‘cheese and toast‘ budget – comfort food, Kiwi-style.

Gordon Campbell, by contrast, hitched his analysis to a more exotic – and far less comforting – food allusion: He termed it the ‘let them eat crumbs‘ budget.

It was perhaps predictable that food metaphors would be used to describe Bill English’s sixth budget – after all, the phrase ‘wafer-thin’ has been used to reference it’s promised surplus for well over a year now (here, here, here, here, here, here, …).

[‘Wafer-thin’? The temptation to segue into the ingestion of the ‘wafer-thin mint’ by Mr Creosote in Monty Python’s ‘The Meaning of Life‘ is almost irresistible … actually, it is irresistible …

As a satire that highlights the inevitable outcome of our insatiable appetites – at so many levels – it’s hard to beat. (It’s no coincidence that it’s set in the poshest of posh restaurants.) Given that current economic growth in New Zealand owes a lot to increased domestic consumption, it’s a sobering reminder of what our economic settings overwhelmingly encourage.]

My own view – also culinary – is that the budget amounted to a typical plate show-pieced in a nouvelle cuisine cook-book. The surplus sat self-consciously – in its contrived, diminutive isolation – at the centre of a bare fiscal desert – with one stark exception that ringed the dish in its vivid thin redness.

In the end, it wasn’t so much the oft-predicted ‘wafer-thin’ surplus that was so striking about yesterday’s budget announcement in parliament.

Instead, all eyes were on the thin bead of headline-grabbing socialism that – like some ‘jus’ drizzled sparingly and randomly at the margins of a sterile white plate – decorated the fiscal dish served up by Bill English.

It was meant, no doubt, as a cheeky act of political artisanship and flair rather than as a serious step in what would have been, for this government, a new policy direction.

It certainly attracted the eyes of those who may have otherwise been disappointed with the substance of the overall meal sitting in all its bereft insufficiency in the middle of the plate.

The ‘wafer-thin’ surplus has, of course, been long in the promising.

This time last year Bill English committed to a ‘wafer-thin’ surplus in the 2014 Budget:

Prime Minister John Key has labelled his Government’s fifth Budget [i.e., the 2013 Budget] “sensible and thoughtful” after Bill English promised a wafer-thin surplus next year.

The Finance Minister said Treasury now forecasts an operating surplus before gains and losses of $75 million in 2014/15, and improvement from a deficit of $18.4 billion in 2010/11.

The ‘wafer-thin’ surplus came under threat when tax receipts took a dive:

The Government is still on track for a ‘wafer thin’ budget surplus in the upcoming 2014/15 year, but growing signs of weaker-than-forecast tax receipts is putting that forecast under pressure.

Treasury reported a budget deficit before gains and losses of NZ$1.393 billion for the eight months to February, due largely to core tax receipts being NZ$1.1 billion below expectations.

The Taxpayers Union (formed by right-wing commentator David Farrar and anti-MMP campaigner Jordan Williams) cautioned the government just prior to the budget announcement that “[w]hen there is a surplus that should be used to pay back Government debt and give back money to the Kiwis that earned it.“

Mr Williams concluded that:

“[w]hen we entered the GFC [i.e., at the end of 2008] the books were in good shape.  What we now need to focus on – especially after Christchurch – is getting the books back into good shape in case we hit some more turbulence.”

The reference to Christchurch (meaning the earthquakes) is significant. Along with the ‘Global Financial Crisis’ (GFC), it is the twin reason usually given for the build-up of government debt to, at the time of writing, $75, 942, 298, 354.

But – it turns out – Christchurch also has a special relationship with the reasons for the ‘wafer-thin’ surplus becoming at least a bookkeeping reality, and being a slightly thicker wafer than expected:

A surprise $300 million boost to the Government’s trumpeted Budget surplus relies mainly on a cut to the Earthquake Commission’s insurance bill, Treasury forecasts show.

In December the 2014-15 surplus was tipped at a “wafer thin” $86m, leaving the Government’s flagship promise on a knife edge.

But Budget documents show the improvement to $372m was given a $200m boost from “lower insurance expenses after an updated valuation of EQC’s insurance liabilities“.

The remaining $100m boost to forecasts came from “an expected increase in the tax take” (fingers crossed!).

But there were other reasons for the surplus – and for the ability to offset extra social spending of $100m which “by ‘a number of decisions in Budget 2014 to manage the fiscal impact of spending on the 2014-15 year’“.

What were these “decisions in Budget 2014” that allowed the fiscal impact to be “managed“? Well, Labour had some ideas:

A decision to defer ACC cuts meant levy-payers were being overcharged by at least $120m, he [David Cunliffe] said.

ACC Minister Judith Collins said she was confident a cut to ACC levies next year would be sustainable and could deliver cost-savings of $480m in 2015-16.

Prime Minister John Key conceded the delay would help protect the surplus.

Labour’s Finance spokesperson, David Parker, had another suggestion for why the surplus was possible:

Labour finance spokesman David Parker also criticised other measures, including an interest-free loan of $375m to the New Zealand Transport Agency to speed up transport projects in Auckland.

Being a ‘loan’ rather than a simple grant allows it to be counted as an asset rather than a liability, on the government’s books. Of course, the interest free loan presumably gets paid back by the government agency (New Zealand Transport Agency) through its various sources of revenue (or, I presume, borrowing):

Funding sources for the NZTA’s investment in New Zealand’s transport system

Updated: 12 January 2012

New Zealand’s road users primarily fund the country’s land transport system through fuel excise duty (petrol tax), charges on diesel and heavy vehicles (road user charges) and vehicle registration and licensing fees. These funds are paid into the National Land Transport Fund (NLTF) for investment in maintaining and improving land transport networks and services. Other funding comes directly from the Crown (central government), from local authorities and other sources such as financial contributions for development.

That is, it is repaid by taxation (the government’s revenue stream) in one form or another so it is, of course, an item of expenditure – it just isn’t counted as one for now.

But there is one more of the “decisions in Budget 2014” noted by David Parker that should raise a few eyebrows for Christchurch and Canterbury residents:

a cut of $567m in the Government’s half share of fixing local infrastructure in Canterbury.

No-one in Canterbury – and Christchurch, in particular – needs telling what that might mean given the recently released Korda Mentha report on the financial situation of the Christchurch City Council which claimed a possible shortfall in the funding of the Council’s (then understood) share of the rebuild costs:

The Christchurch City Council is facing a cost over-run of $534 million which could balloon if it fails to secure $1 billion in insurance payouts.

Already, there’s been a report on possible revenue from asset sales, including the Council’s revenue-generating shares in the Airport, Lyttelton Port Company and Orion (the electricity company).

It also adds a curious and tantalising glow to Gerry Brownlee’s negative reaction to the pessimistic view in the Korda Mentha report of the Council’s costs associated with the rebuild in its cost-sharing agreement with the government.

Canterbury Earthquake Recovery Minister Gerry Brownlee says the Crown has concerns about some of the assumptions made in the Korda Mentha report on the financial position of Christchurch City Council, released today, and the accuracy of some of the data incorporated in the report.

“For those reasons on April 30 the Canterbury Earthquake Recovery Authority (CERA) asked financial consultants Morrison Low to provide their independent assessment of how the council’s financial position, as presented in the Korda Mentha report, relates to the Crown’s role in the rebuild.

…

“We expect to receive Morrison Low’s report in about 14 days [i.e., after the Budget] and will be in a position to respond after that.

…

“Releasing the report today raises many more questions than we are presently able to answer.

…

“As the government is not in a position to make a fully informed comment on the Korda Mentha report it is disappointing the council has chosen to release it,” Mr Brownlee says.

Still, Cantabrians can rest assured that they are still going to be well looked after by a well-fed CERA. The budget provides for an extra:

$50 million over the next two years for the Canterbury Earthquake Recovery Authority.

As nouvelle cuisine goes, the cut to the government’s share of the infrastructure rebuild costs is a particularly bitter little budget morsel to swallow for those of us in Christchurch.

We know all about the enormity – and costliness – of the essential infrastructure rebuild. Massive roadworks surface unpredictably on the main arterial routes around the town like some thrashing school of subterranean Loch Ness monsters randomly breaking through the surface of our thin urban crust then quickly disappearing again before returning in upheavaling force only a few days later. [I will return to the fascinating case of prospects for Christchurch voting behaviour in the upcoming election in a later post.]

The ‘wafer-thin’ surplus was, to most commentators, not a surprise (given its long-heralded delivery) so much of the attention given to the budget has focused on its rather more surprising ‘family friendly’ features.

The two week extension to parental leave in the first year, followed by a further two weeks the following year, extensions to the parental tax credit and funding for early childhood education were some of the surprise elements. But most surprising of all was the extension of free doctors visits and prescriptions from the current age limit of 6 to 13 years of age.

And there’s something of a consensus emerging on these social spending initiatives – they are principally in the budget as an election year spiking of the opposition’s ‘guns’.

Here’s the Herald’s John Armstrong:

So much for the election-year Budget which was not going to be an election-year Budget.

In delivering his sixth Budget, Bill English has pulled off the Great Brain Robbery. The Labour Party’s brain, that is.

…

It is as if Bill English has been rifling through Labour’s chocolate box of policies, taking the most tasty bits of confectionery and claiming them as his own.

Such is the policy heist, you could be excused thinking large chunks of the Finance Minister’s Budget speech had been penned by David Parker, Labour’s finance spokesman.

Gordon Campbell – in a thorough and in-depth analysis of what he terms the ‘let them eat crumbs’  budget – was just as pointed:

Hate to hurt Bill English’s feelings, but yesterday’s Budget looked like a document the Labour Party might have written – and no, that’s not meant as a compliment. Basically, English will be keeping it steady on the economic fundamentals, while sweetening them with a few social spending gestures aimed at blunting the appeal of already signalled Opposition policy in these areas. They’re tactical blocks thrown in election year for vote-catching purposes, and they’re not being pursued on the basis of what’s affordable – more spending certainly is – or in response to social need.

As a taster of Campbell’s analysis here’s an extract from his conclusions:

So there it is. A Budget that does contains [sic] a few desirable bits of positive social spending – just sufficient, perhaps to blur the outlines of a programme of government spending that will see services either flat-line, or contract. Unemployment will still be above 5% in 2016, mortgage costs are on the rise, wages are set to lose ground against inflationary pressures that are largely being generated by the non-tradeable sector, while our tradeable sector sinks further into deflationary territory. Overall, the current economic recovery is almost entirely reliant on dairy, logs, consumption on cheap imports and the rebuild in Christchurch.

Looking ahead, the public’s reward for the past six years of belt tightening is the prospect that these gains will soon be hosed away on tax cuts (during the next term) that will disproportionately reward the people least in need. It is a scenario where income inequality, wealth concentration and the related social problems are bound to rise. For this performance, National is receiving a round of applause for its tactical brilliance, and its skill in triangulating Labour’s social policy programme, for a relative pittance.

That “tactical brilliance” in “triangulating Labour’s social policy programme“, all achieved “for a relative pittance” (a mere $90million over four years for the doctors visits, for example) is one of the most fascinating aspects of this Budget.

Whatever else the positive headlines about these aspects of the Budget show they certainly indicate the very curious relationship New Zealanders appear to have about social support.

The very features of the budget about which this National-led government are receiving the most praise and the most positive response from community groups and, apparently, ordinary New Zealand parents are the features most at odds with the rhetoric and, presumably, ideology of the current government.

As loose as the term is, the communal provision of health services and paid parental leave, in particular, falls – if it falls anywhere ideologically – well to the left of any notion of market provision involving individuals working hard in their own economic self-interest.

It’s as if the New Zealand electorate likes to ‘have its right-wing ideological cake and eat it too’ (to continue with the foodie metaphors).

It appears to want to have a government that, at least rhetorically, commands it – like some political dominatrix – to flex its personal responsibility muscles, aspire to individual ambition and to work hard without expecting any support from anyone else (and which, sadly, also validates a prejudice against those who receive such support).

And yet … the electorate, and certainly political commentators, now respond ever so positively to the wider provision of social support. Even more confusingly, introduction of such support is met with acclamation for the political cunning that underpins the inclusion of such obviously popular budgetary policies.

Does this positive response from the media (including the long trail of ‘vox pops’ interviews) mean that all that talk of our collective revulsion at the creeping presence of ‘nanny state’ back in 2008 was just a little joke we were having at the Labour-led government’s expense?

What’s going on?

It’s as if New Zealanders only now accept progressive social policy when it is delivered by self-declared believers in the reduction of government, the public sector, taxation and – most centrally – the welfare state.

It’s worth remembering that the ‘dead rats’ that National MPs knew, before 2008, that they would have to swallow to gain the government benches were, principally, some of the most left-leaning policies introduced by the Clark government: Four weeks annual leave; paid parental leave; working for families; interest-free student loans; Kiwibank; etc..

As Bryce Edwards put it back in early 2008:

There’s no doubt that National’s latest announcement that it’s adopting Labour’s interest-free student loans is a policy U-turn. In fact it’s just one more chapter in a whole series of U-turns. National’s been ‘swallowing dead rats’ for the last few years on: KiwiSaver, Working for Families, industrial relations, Treaty claims, retention of the Maori Seats (in the short-term), anti-nuclear policy, non-market rents, the Cullen Superannuation Fund, four weeks annual leave, among others.

But, of course, feeling the electoral need to swallow a dead rat served up by your opponents when they were in power is quite a different tactic from throwing your own dead rat onto the barbie.

So, once again, ‘what’s going on?‘.

Chris Trotter put his finger on it:

Key remembers what the ideological hard-liners of his caucus (and Act) appear to have forgotten. That the purpose of the National Party is to bar the door to the House of Power and prevent the Labour Party from entering. Or, should Labour somehow manage to gain entry, to do whatever it takes to evict them. National’s first – and last – principle has always been: “Hold on to power at all costs, and don’t, under any circumstances, let Labour win!”

The only way to make sense of this Budget – with its extension of free doctors’ visits to under-13s, increases to paid parental leave (one of the original ‘dead rats’ from the Clark years) and the parental tax credit (another Clark government ‘dead rat’ as it is one of the Working For Families tax credits) – is to understand its motivation as purely political (in the saddest sense of that phrase).

Seeing the Budget in this way makes sense of not only its ‘surprising’ social policy measures but also it’s general lack of other vision.

As all agree, the social policy provisions are there solely to win the election. And so is the lack of vision.

To paraphrase John Armstrong (quoted above): This was the election-year budget that was always going to be an election-year budget.

In election years, after all, political pragmatism meets its fundamental raison d’être.

Like nouvelle cuisine, – and as our Prime Minister knows all too well – pragmatism (both personal and political) is all about presentation – and the minimisation of anything of substance.