Thursday, April 30, 2009

The focus on government spending

I pity Bill English come Budget time. However, in times of adversity comes opportunity. Richard Prebble has written an excellent piece on the numbers and how serious it is. And a little number crunching by my spies shows the following.

Government spending per person in 1983/84, 2009 dollars, was $11,527.35. Government spending per person in 1995/96, 2009 dollars, was $11,292.22. Government spending reduced over this time saving each of us about $230.00 per year.

Yet government spending per person in 2008/09, 2009 dollars, was about $19,000.00. So between 1983 and 2009, the increase cost you about $7,500.00 per year. But which Government stole more?

National: $2,662.22 (4 years)
Labour: $4,905.41 (9 years)
Total: $7,567.63

This increased cost of Government for families is as follows:

Family of Three
$22,702.90

Family of Four
$30,270.53

Family of Five
$37,838.16

Family of Six
$45,405.80

Productivity, not government spending, is the driver of our wealth and wages. High productivity growth will deliver high wage growth. But unfortunately, high taxes and poor quality spending decrease productivity. We are paying for government twice – once through taxes, and once through lower wages.

Productivity growth from 1984 – 1990 was 2.8%. In 1990 – 2000 it was 2.5%, yet in 2000 - 2008 it was a mere 1.1%. This cost in lost wages adds up over time. The difference between 1% productivity growth and 3%, over ten years, is almost 25%. That is, policies which lowered our productivity growth have resulted in wages 25% lower than they would otherwise be. For the average wage earner, that’s over $10,000 per year.

So what's the future?

Let's take a "two futures" look for the year 2021. If we do the same as we have done over the last 12 years from now till then government spending will be $31,500.00 for every man woman and child: the average income will be $54,600.00.

But with quality policies, which involve reduced government spending at just $19,000.00 for every man woman and child in New Zealand, plus inflation adjustments, the average income will be about $69,000.0.

Do you want a big government in 2021 or a small government? The burden of Government per person could be $31,500.00 or $19,000.00 and therefore an average wage of either $54,600.00 or $69,000.00.


Your choice.

6 comments:

Anonymous said...

or we could get spending under control - back to say $10000 per annum. Then we'll really see growth.

Anonymous said...

Prebble's piece still underplays some very important facts.

That 1 Billion a year gap - how do we plug that?

Then how do we pay back the 80 Billion or so NZ as a country owes overseas? Labour's so called "debt payoff" did payoff government debt, but only at the cost of more than doubling private debt - in other words, once again making everything worse!

Clearing getting government spending down from $20,000 per head back to say $10,000 per head is a start. How do we do that? One of the commentators says that means a total cut of all education and health spending but with no tax cuts - do you really think English will propose that?

What happens to NZ when the bankers say "no?"

PhilBest said...

Good analysis, Gooner. That is why soft socialist government is always ultimately unsustainable. Increased government spending with decreased economic growth, hmmmmm, how good at maths do you have to be to see that it is not going to work?

And Anonymous above, what NZ had for several years, was "household sector Keynesianism"; our economy was artificially stimulated by borrowed money, it was households that were doing the borrowing, not the government.

This caused the whole economy to be artificially inflated by as much as 5% per year, so even people who acted responsibly have had it artificially good. Worse, the government had artificially high revenue but instead of having their heads around what was happening, merrily spent the artificial surpluses and committed to new spending as if the good times were for real and forever.

All this private debt is now limiting thev government's ability to borrow on international markets; the international markets aren't stupid; they can see from NZ's basic statistics that we are one of the most vulnerable countries in the world, goodness knows what has staved off a crash the scale of England, Ireland, Spain, California, etc, so far. We seem to be just having a slow, in-denial unwinding; it has a long, long way to go before it hits bottom.

Gooner is absolutely right; carrying on with most of the existing policy settings unchanged is just denying our rendevous with disaster.

Anonymous said...

goodness knows what has staved off a crash the scale of England, Ireland, Spain, California
SImply the fact that NZ's cycles runs about a year behind those economies.

People have booked their holidays, or entered into contracts for wine imports, food purchases, 6-12 months in advance. Always have, always do - its part of being so far away.

The country to compare NZ with is Iceland. Both are highly indebted, both had freely-tradable currencies, in fact Iceland was the smallest OECD currency and NZ the second-smallest.

Iceland is - for all intents and purposes - no longer a sovereign nation but a colony of the EU
When - not if but when - NZ follows Iceland down the gurgler, who do you think will come to our rescue, and on what terms?

emmess said...

Look at the graph here
http://www.economist.com/world/britain/displaystory.cfm?story_id=13579619

That dickhead Brown in the UK has taken spending back to the levels pre-Thatcher.
I would say it much the same here
Fucken scary

Anonymous said...

Nope MS - under Hellen/Cullen

spending and taxation levels greatly exceeded the levels of Muldoon