Gordon Campbell on Budget 2015

From the outset, the slogan for yesterday’s Budget – “The Plan Is Working” – begged to be mocked. There’s actually a plan for the national economy? Who knew? And its been working for whom, exactly? Not for families in poverty, clearly. Supposedly, the social hardship package is the centre-piece of Budget 2015. Yet how could Finance Minister Bill English claim with a straight face to be doing anything significant about poverty – or income inequality – without making any changes to the economic settings that keep on generating it ?

In reality, Budget 2015 contained no sustainable plan to transform the lives of the poor. What we got was a sop, a stunt paid for in part by the continued, chronic underfunding of areas such as health and education which – newsflash – also affect the quality of life of those living in poverty. Core benefits for families with children will go up by a headline figure of $25 a week, while fiddling with tax credits will deliver about $12 to low income families in paid employment.

That headline figure for the increase in benefits was misleading. No-one will get an extra $25. The real figure is a maximum of $23 in the hand when the simultaneous (and miserly) deductions in income-related rents and other forms of assistance is factored in. By late last night, Work and Income were clarifying that these abatement rules meant that many beneficiary families would receive an increase more in the nature of $18, and some families would receive nothing extra at all. Moreover, the figures seemed plucked out of the air, rather than based on any research into existing levels of need. Plus, the relief is deemed to be so urgently needed it won’t actually arrive for another eleven months.

Other Budget changes will be punitive for those living in poverty. Currently, sole parent beneficiaries are allowed to look after their kids until they go to school at age five, without having their income docked. Not for much longer. From April 1st next year, sole parent beneficiaries will be required to make themselves available for part-time work when their youngest child turns three, and beneficiaries already working part-time will be required to work an extra five hours a week, up to 20 hours in all. Where are the jobs supposed to come from?

These new requirements will have significant impacts. With a five year old, work availability can be organized (with some difficulty) around school attendance. Making it kick in from age three raises a fresh set of issues around (a) the availability of work and (b) the availability and affordability of childcare, all of which vary considerably from region by region.

The current provision of 20 free hours of Early Childhood Education will remain, but the government has failed to fund the sector adequately for years, and in this Budget there has been inadequate provision for those needing childcare.

There has been a princely $1 an hour rise in the childcare subsidy, to $6 an hour. If that seems pathetically low, it is. So …what do Treasury actually estimate is the relevant average cost of childcare? About $6-7 an hour, I was told by Treasury officials at the Budget lock-up, a figure that Treasury derived from this 2011 Education Ministry study (slightly) updated in 2013, although the updated figures are not available online. Even in the original 2011 version, the estimated childcare costs were actually in excess of $6 an hour – $8 to $8.50 was the average estimate. Not surprisingly, early childcare providers have criticized the ongoing inadequate funding for Early Childhood Education (ECE) – a failing that this Budget perpetuates.
Ultimately, ECE providers will feel compelled to raise their fees. If the shortfall has to be met by parents, this will further erode the ballyhooed minor boost to benefits.

But wait, there’s worse. Currently, 18.000 sole parents on benefits are fall into that targeted category of those having their youngest child aged between three and five. These families will be affected significantly. Interestingly, a reporter asked English at the Budget lockup whether these new work requirements for sole parents with very young children were fair – and after being pressed twice on this point, English chose to answer only at a tangent. Experience with welfare reform, he replied, had shown that some beneficiaries responded positively to these kind of requirements. Apparently, the fact that some solo parent beneficiaries managed to cope is the rationale for why all of them will now be compelled to do likewise.

To sum up : the boost to benefits will occur in the absence of any structural change to the policies generating poverty. The minimal increases will do little to make poverty bearable, and some of the fish-hooks will make life worse for some households. The chief purpose has been an entirely political one : by raising core benefits, the National-led government has managed to trump Labour on its own social policy ground ! Whoopee. That may be great political strategising, but the crumbs from the table – which have been paid for largely by starving other key areas of social policy – will not lift any families at all out of poverty.

For Finance Minister Bill English, Budget 2015 looks like a continuation of a dream run, where a dogged record of under-achievement is treated as prudence. As Danyl McLauchlan recently indicated on the Dim-Post site,

a Labour (or Green) Finance Minister with the same track record as English – borrowed $100 billion, racked up seven deficits in a row, predicted a surplus and then failed to achieve it – would be being mocked in the corporate media as a dangerous incompetent who needs to be removed before he can do further damage.

In itself the surplus is meaningless. It is only a means to an end. Utilising it for the greater good requires a plan for how best to invest to grow the economy – yet apart from cost cutting and belt tightening (in the pursuit of Small Government and a surplus that English apparently intends to fritter away in 2017 on retail spending via tax cuts) that sort of long term planning seems quite beyond English. Much of the time, he gives the strong impression that he instinctively distrusts the vision thing, in all of its forms.

Ultimately, a surplus is meaningless because it can be conjured up – or whisked away – by any random piece of addition or subtraction. (eg we would have been in surplus long ago if it hadn’t been for the ruinously unaffordable regime of tax cuts launched by National in 2010.) For the record, a $684 deficit is being forecast this year, rather than the promised surplus. A slim deficit is forecast next year – it may eventuate, it may not – and a significant surplus is forecast in election year 2017 when a ‘modest” round of tax cuts may well be in store. In a related burst of co-incidence, the money available for operational spending across the board will more than double ( to $2.5 billion) during election year 2017, compared to the $1 billion budgeted for this year and next year. Such blatant political pump-priming is what passes for ‘prudent’ management of the economy, under this government.

If you want a really good example of the Key government’s lack of a long term plan, take Health funding. According to the Budget spin machine yesterday, Vote Health spending has risen to a ‘record’ level of $15.9 billion this year, a figure that includes capital expenditure. Some $320 million of extra funding has been set aside in the coming year for DHBs. Yet according to the Association for Salaried Medical Specialists, the amount for spending on health services is considerably less ($14.765 million) and is actually $260 million below what’s required merely to maintain the status quo in the public health system, given (a) a projected population growth of over 2% (b) rising costs for new technology and pharmaceuticals and (c) rising salary costs, now that pay levels in public health have been allowed to fall substantially behind those in the private health sector.

So…. rather than an adequate response to the healthcare needs of an ageing population that is already suffering from large swathes of unmet need, Budget 2015 offers a recipe for further cutbacks by DHBs in the range and quality of the services that they currently offer. Not only the health unions are saying so. Richard Forgan, Price Waterhouse Cooper”s Budget 2015 Leader has been equally critical about the inadequate provision and short term focus of yesterday’s Budget provisions for Health :

“…..Maintaining existing services and expected demand will be challenging with the $320 million available and any gaps in funding will need to be bridged with efficiency gains. The decision to focus funding on current services misses the opportunity to invest in long-term conditions prevention which could reduce future demand, and therefore cost of healthcare provision over the longer term, ”

On paper, the further cutbacks that the DHBs will now need to pursue will have been compounded by the new services announced in the Budget. These include $98 million more for elective surgery, $12.4 million for extending a bowel cancer screening pilot ( but no national screening programme) and $76.1 million more to hospices for better end-of-life care. According to Treasury officials at the Budget lockup though, DHBs will be required to fund only $20 million of this total package of $186.4 million in new initiatives, with the rest coming directly from the Ministry of Health.

In sum, this still means that the 20 DHBs will be expected to meet their new challenges from a shared pool of only $300 million in new funding, or $15 million each. That is patently insufficient at a time when – as mentioned – the public health system is under extreme cost pressure, and when major health needs in the community are already going unmet. Is this really how we want to fund the next round of tax cuts, now due in election year 2017 ?

Just in case anyone thinks Vote Health funding is always a bottomless pit, here’s a reality check. There is no evidence that the cost of our health services is outpacing the country’s ability to pay for them. In fact, Vote Health has been declining as a proportion of GDP since 2010, and that ratio will decline further in the wake of this Budget. Meaning : We do not face an ever-expanding level of spending on Health needs. Instead, public health is receiving an ever-declining share of an expanding economy. In this year’s Budget, if the allocation for Vote Health’s operational funding had been allowed the same ratio of GDP that it enjoyed in 2009/10, there would have been an additional $1.2 billion in operational funding. See the evidence here and also here.

Where are the jobs ? The projections in Budget 2015 for falling unemployment look suspiciously rosy. Treasury got its forecasts wrong earlier this year and there is no reason to think it will be any more accurate in predicting a fall in unemployment next year – not when the economic recovery is flatlining, jobs from the Christchurch rebuild are flattening out, and dairy export prices continue to fall.

It is not as if the country entered the Budget 2015 process in great shape anyway. As this Fairfax article recently pointed out, growth in the past two years has been running at 2.6% , which is actually below the 2.8% average for the last 20 years, and that same 2.8% average is all that Budget 2015 is currently predicting. Hardly cause for breaking out the champagne.

What the employment /unemployment outlook does underline is the dependency of the national economy on the Christchurch rebuild, and on the housing bubble. Of the 74,000 additional jobs created last year, some 23,300 of them were in construction, which – among other things – is a heavily male dominated occupation. Current policy is simply not creating jobs at anything like the rate required in the long term, and certainly not in the productive, high income parts of the global economy. As the Fairfax article cited above concludes, the current 5.8 unemployment rate means that 146,000 are currently unemployed – as compared to 105,000 at the end of 2008 when John Key first became Prime Minister. We’re still in catch-up mode, and we’re slowing down.

Far from “having the books in order” as John Key claimed in Parliament yesterday, the New Zealand economy remains dependent on the global price for dairy, and on China’s demand for our exports. We are still struggling to make up the ground we lost during the Global Financial Crisis – a cataclysm from which we were sheltered from the worst only by (a) those high global prices for milk powder, now receding (b) the stimulus-driven demand from in China and Australia, now receding and (c) the domestic stimulus from partial asset sales and the Christchurch rebuild, now also in decline.

None of this comprises a sustainable platform for future growth and for jobs much above the minimum wage. Budget 2015 is a portrait of a government flying on autopilot, and tossing out crumbs – largely for its own tactical benefit, and mainly by starving public services and shuffling funds from one sector to another. Whatever that it is, it isn’t a plan for anything more than the government’s own survival.


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2 Comments on Gordon Campbell on Budget 2015

  1. Love your comment mocking “The plan is working”, as to us workers/public/powerless that appears the case . But sadly John Key and National have a plan and thats to increase the wealth transfer to the wealthy and thats working. It involves selling state assets , signing the secret TPPA , reducing the tax on the rich and increasing the tax on the poor, making labour more flexible (read more exploited), stopping superannuation payments. Borrowing billons of $ and putting the govt in huge debt. Oh wait that sounds like neo-liberalism. Hes just continuing the plan Labour party started.

  2. That Labour started this Neo-Liberalism crap doesnt make it right for National to continue this crap.Don’t be too surprised when your precious JK gets rolled and the Nats go under the bus in 2017.

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