It won’t be the detail of this month’s Budget that will show the Government’s colours as much as the document’s big theme of centralising decision-making and control, writes columnist Peter Dunne
This year’s Budget will be the first solely Labour Budget in more than 30 years. Sir Michael Cullen’s nine Budgets (2000 to 2008) were all constrained to some extent by the need to keep coalition and confidence and supply partners on side. Likewise, the current government’s three Budgets so far have all been heavily influenced by the presence of New Zealand First.
Now, for the first time since the Fourth Labour Government in 1990, a Labour Finance Minister is in a position to present a Budget, unfettered by coalition constraints.
But those looking forward to a “real” Labour Budget are likely to be sorely disappointed.
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Budgets today are a far cry from those before the early 1990s. The Fiscal Responsibility Act of 1994 changed the face of Budgets forever. Innovations like the Budget Policy Statement – the statement the Government is now required to release each December setting out the broad parameters of the forthcoming Budget – have seen to that. With this new level of transparency, Budgets of the past 25 years have become much more predictable, and must less exciting and dramatic as a result.
Although governments usually keep one or two Budget surprises up their sleeves for announcement on Budget Day, it has been many years since the dreaded words “from midnight tonight”, so frequently a feature of Budgets in the Muldoon era especially, have been used to announce major policy changes that would then be rushed into law in an all-night parliamentary sitting, immediately after the Budget’s presentation.
Today, most of the major components of a Budget have been announced several weeks in advance. That means that Budgets today are much more strategic policy documents, setting out the Government’s intended policy path, alongside specific policies to achieve it, over the coming three to four years. This is a stark contrast to Budgets up to the end of the Muldoon era which were more a list of goodies to be handed out and the harsh steps to be taken to pay for them, than a coherent government plan for the future.
This year’s Budget will be no exception to the modern approach. In pre-Budget speeches, the Minister of Finance has already made it clear this is likely to be a Budget of consolidation, rather than one of innovation. This is hardly surprising, given the blockbuster spending commitments of last year’s first Budget of the Covid-19 era. Indeed, the minister is already asking ministers to look again at their respective Covid-19 spending requirements, and has so far identified nearly a billion dollars of savings – about 2 percent of the total spending commitment – that can be made in these areas. As this year’s Budget starts the process of repaying the debt incurred in funding the Covid19 recovery package set out last year, it can be expected to focus on ensuring future Covid-19 recovery spending is both disciplined and well directed.
Against that backdrop, the Budget’s capacity for bold new spending initiatives looks limited. Aside from the fiscal constraints, there are a couple of reasons for this. First, it was clear from last year’s Budget that the scale of new spending it foreshadowed was very much a one-off that would not be repeated. Moreover, a great deal of that spending would be spread over years to come, meaning substantial aspects of subsequent Budgets would be directed to following through on those commitments. Second, because of the focus Covid-19 had demanded, many other policy areas, with the possible exception of climate change which the Minister of Finance has signalled is likely to get some attention in this year’s Budget, were simply not at a stage where substantial new spending proposals could be brought forward in time for being considered as part of this year’s Budget process.
In view of the criticism of this Government that it is far better at talking about what it would like to do, rather than actually getting on and doing it, there will be a difficult but not impossible balancing act to be achieved to avoid the perception that a Budget of consolidation is little different from a Budget of inaction.
The Government seems acutely aware of this sense, confirmed to some extent by the small but significant revelation that the Budget will contain the extraordinary announcement of a small team within the Department of Prime Minister and Cabinet charged with ensuring that announced government policies are actually implemented. Normally, one would expect ministers to be the ones accepting responsibility for the implementation of policies within their portfolios that have been approved by Cabinet.
Aside from this implied criticism of the capacity of ministers to implement their policies, there is a more important aspect to this specific proposal that is consistent with a likely underlying theme of this year’s Budget. Over recent weeks there has been a series of moves from the Government signalling it is now beginning to assert its control over the political and government agenda in a way not seen before during this term of office. Accompanying this is a strong sense that the Government is determined to bring as much of the economy as possible under the government’s direct control.
Already the Minister of Finance is telling Air New Zealand that in return for being its major shareholder, the Government now expects to have a more direct say in both board appointments and significant managerial decisions. There has been an ongoing tussle between the minister and the Governor of the Reserve Bank in a clear attempt to curb the autonomy of the Reserve Bank.
The Minister of Education has a review underway to reduce the independence of school Boards of Trustees and bring more of their current responsibilities back under the control of the Ministry of Education.
In recent weeks, the Minister of Health has announced a bold health restructuring plan built around abolishing the 20 directly elected autonomous district health boards, and replacing them with a new central agency, Health New Zealand, responsible directly to him.
At the same time, the Minister for Local Government announced plans to review the size and scope of local government, including whether some of its existing functions could be more directly exercised by central government.
And the Minister of Housing has confirmed the purchase of around 1000 newly built houses in the private market, to be converted into state houses as part of the public housing programme.
Taken together, these still largely prospective changes signal a clear about-turn in the general deregulatory and open market approach that has underpinned the New Zealand economy, ironically since the reforms of the Fourth Labour Government in the 1980s.
While specific details are still relatively light, there can be little doubt now that the Government has in mind a very specific realignment of power and authority in its direction. In many senses, the level of central control deemed necessary to combat the Covid-19 crisis has aided and abetted the delivery of this objective. It has made the idea of big, centrally dominated, government more palatable again, and the Government is clearly keen to take advantage of that.
Therefore, the true relevance of the coming Budget will be the extent to which it reinforces this emerging overarching theme, rather than the specific measures it contains. So, while it will not be a “real” Labour Budget as those of the past are nostalgically remembered, it will be a Labour Budget nonetheless. The traditional Labour appeal to the hip-pocket may be about to be replaced by a more subliminal appeal to core Labour values of collective endeavour (the team of five million writ large, if you like). But the message will be unambiguously Labour – the government knows best and only it can deliver what is good for its citizens.