Treasury's advice to Bill English is nothing if not clear – it's time to cut. So does its briefing to the incoming minister make its case? Or rather miss the point entirely? What do you think...
Reading a Treasury briefing can be a morbid experience; they are the bureaucratic embodiment of cynicism, seeing the price of everything and the value of nothing. The latest offering to the incoming minister makes you wonder whether the word "invest" is simply too long for the Treasury analysts, so they fall back on a nice short one – "cut".
Treasury has presented its former staffer Bill English with a 27-page document that ticks all the typically gloomy boxes on the country's economic performance, the global economy, government spending and the like. Media reports have picked up on its recommendations to raise the retirement age and encourage you and me to save more, which should be top government priorities.
But the rest of the advice is lacking in vision or ideas on growth. There's no contest of ideas, no fresh thinking, nothing but a certainty that government is bad and the private sector is good.
The language is wonderfully euphemistic, but boils down to the same thing:
- "Restoring fiscal buffers" means cut public spending
- "Innovation" means cut public sector jobs
- "Reform" means cut private sector taxes
If our public sector was a lawn, Treasury in all its wisdom only sees it through the lens of the lawnmower. It doesn't see the rain or sun, the nitrogen or insect life; just the need to cut and contain.
Let me give you a few examples, starting with public sector staff. Treasury says they're some of the most efficient, transparent and able in the world. Yet numbers have grown in recent years as a result of government policy changes, and therefore must be cut. Why? Because it claims the growth has not been commensurate with improved services.
Does it offer any evidence for this bold claim? No. Does it give any historical context, showing that the public sector is still small compared to a generation or two ago? No. Does it establish where the most substantial growth has been, such as in nursing? No. Does it, crucially, prove a link between the staff growth and what it claims is the poor performance of the sector? No. In other words, staff numbers could be necessary and any failings could be down to poor management, wrong targets, lack of resources etc. And does it recognise that the growth in the public sector could have other positive implications, such as nudging up the average wage? Well yes, it does acknowledge that the state sector has a large impact on incomes. But what the heck, let's cut it anyway.
Or let's consider welfare reform. Treasury's attitude there is a wonderful example of lawnmower cynicism. Check this out:
"In addition, it is important that wider labour market settings support welfare reform. For example, large increases in the minimum wage would limit employment opportunities for people transitioning from welfare to the labour market and for youth."
In other words, low wages are great because that will mean more jobs are created... No recognition that our lack of wage growth is driving people offshore; that our main competitor for labour, Australia, has a higher minimum wage; or that higher wages means higher tax revenue and more economic stimulus.
That view is so one-eyed and short-termist; what's more it seems to ignore Treasury's own advice from 2010 (released last year) "that a higher minimum wage does not generally lead to higher unemployment."
One last example, from the education field. Here's what Treasury reckons on early childhood spending:
"Overall, the evidence suggests that the highest returns to public education expenditure relate to investments in the earlier years, especially for lower socioeconomic groups. Despite large increases in government expenditure, early childhood education (ECE) participation rates for children in the lowest income brackets have not increased (figure 20), with the expenditure instead supporting a greater volume of hours and higher proportions of registered teachers. Given the gains that can be made, we recommend further targeting of existing ECE funding to children from lower socioeconomic backgrounds."
So Treasury's saying that ECE offers the best bang for your buck in terms of improving people's lot in life. Yet it immediately suggests cuts to funding because the increases increased participation rates of the poorest kids.
Now that's a failing that the government is rightly addressing. But why are participation rates its only consideration? Evidence also suggests that "quality" ECE has a significant impact on a child's development and successes, hence the funding for extra teachers and training. We also know that demand for ECE has grown with the population and trends towards mothers returning to work sooner after giving birth – something the government and Treasury support when it comes to welfare mums. Hence the increased hours.
So why is that spending dismissed as low value? That funding was never meant to increase participation (quantity), but to make ECE better (quality). It seems they're unhappy with the orange for being an apple.
It's all lawnmower logic that's built on a contestable premise – that cuts are not only good per se, they're good at this point in the economic cycle. A Treasury should worry about debt, but ours obsesses over it. Its core message to government is:
"Returning to fiscal surplus and rebuilding fiscal buffers by lowering government expenditure relative to GDP is the most direct and immediate contribution that the Government can make to reducing New Zealand’s macroeconomic imbalance."
I would have thought you could only come to such a conclusion after asking a couple of key questions. First, Is the domestic economy strong enough at the moment to pick up the slack and maintain economic and job growth if the government cuts so dramatically? Second, is the global economy robust enough – and is our export growth sufficient – to justify the government taking money out?
These are the core questions being debated around the world, especially in the US election race. Western governments have been stimulating their economies to varying degrees since 2007 while their markets and private sectors have floundered. The question is when is it time to pull back.
Given that the briefing repeatedly refers to risks in Europe and Asia, you'd think it might engage in this debate; it doesn't bother.
Its assumption is that we must save or else... Cut, cut, cut, goes the lawnmower, its blades too busy spinning to stop and think.
Thing is, it's exactly the advice this lawnmower government wants to hear, as it too has decided it's time for the stimulus to end and the cuts to begin. So the path is set. One of the most interesting things this year will be watching to see if it's right. Or not. It could be the making or breaking of the next election.