Gordon Campbell on yesterday’s Budget

It may seem like Oliver to be so bold as to ask the Finance Minister for more gruel – but what the Dickens, Steven Joyce… is this Budget really as good as it gets? Supposedly, the public was going to receive significant rewards – an election year lolly scramble no less – for the eight years of belt tightening that they’ve endured, and for the rundown of essential public services.

Well, what Budget 2017 delivered instead in Education and in Health (see below) were allocations barely sufficient to maintain the current levels of service delivery, given the costs associated with population changes, inflation (forecast at between 1.6% and 2% per annum over the next four years) rising costs and the provision of a limited number of new services. Not to mention the looming health needs of a rapidly ageing population.

A lot of yesterday’s Budget was smoke and mirrors. To take a small example: a $27 million fund formerly existed for elective surgery, reduced to $12 million last year, now boosted by this Budget’s extra $6 million input. Do the math. Ultimately, it still amounts to a roughly $9.7 million cut in the prior level of funding for elective surgery. Despite all the media headlines about the shortfalls in mental health, this Budget (also see below) delivers funding for mental health barely sufficient to maintain the current level of services.

Not only the centre-left has been unimpressed. To the chagrin of those on the right of the political spectrum, there were no cuts to company tax rates, or for higher income earners. Instead, tax relief has been conveyed via a trio of measures. Namely:

(a) changes to tax thresholds.
(b) tweakings of the Working For Families tax credits, yet targeted to deliver the benefits only to those WFF recipients with children below 16 years of age
(c) small increases in accommodation supports, including for those students eligible for the student allowance.

Obviously, it is better to have a few crumbs from the table than nothing at all. Yet given the claims by Minister Joyce that sound economic management has finally created an opportunity to spread the largesse around, the rewards look meagre indeed – in terms of addressing existing social need, this Budget looks more like the same old soup kitchen rations than a four year banquet.

Before getting into the details of what it did contain, keep in mind what the government has chosen not to do. Much spin has been devoted to the alleged fostering of economic “resilience” in this Budget. But while using the surpluses to further reduce our already low levels of government debt, Joyce has hardly used the remainder to future proof New Zealand against the challenges that it faces. The problems of income inequality and climate change for example, have been virtually but ignored in this Budget

Yes, within the multi-billion dollar infrastructure package extra money has been allocated for investment in innovation and r&d – yet the Budget documents predict the share of merchandise exports to continue to flatline, and the export of services is optimistically predicted to deliver the value-added returns, alongside the usual contributions by the now-reviving dairy sector. Diagnosis: mere top-ups have been made to the usual founts of economic investment. Despite the surpluses, the government has also chosen not to resume payments to the Cullen superannuation fund any sooner, and when it eventually does so these inputs are being set at a lower rate than before. Future generations – and future governments – will bear the consequences.

The Budget has allocated the paltry sum of $6 million to combat climate change. At the same time it is pumping substantially more money into the old emissions-generating standbys ie, irrigation, and a $9.17 billion investment in road construction over the next four years. On housing, the hidden limitations of the 34,500 home build package announced last week have already been highlighted.

On social housing, yesterday’s Budget documents again provided only a paltry injection to that sector. Come 2018, the Budget also predicted, housing prices will resume their upwards climb, before being forecast to fall back to more modest levels in 2019 – 2021 as significant numbers of new houses get built. That trajectory seems rather optimistic, given (a) the capacity constraints on house building already evident in the construction sector in Auckland, and (b) the upwards pressure on prices that continue to be generated by immigration and low interest rates. There is nothing very substantial in the Budget to dampen the house price spiral and to make housing more affordable – such as say, action on capital gains, or against negative gearing.

Tax relief

As mentioned, even the government’s support base on the political right are feeling vexed. The tax threshold changes delivered in lieu of major cuts to income/corporate taxes came in three stages:

a.The cap for the 10.5 % tax bracket (including beneficiaries)has been raised from $14,000 to $22,000.

b. ditto, the income cap for the 17.5% middle income rate has been raised to $52,000, from $49,000.

c. The higher income 30% bracket will now be levied on income between $52,001 and $70,000, and finally, the topmost rate of 33% on income above $70,000 will remain unchanged.

These changes are being packaged as relief to the poor – yet the ripple effect of the threshold changes through the tiers of income will mean that the biggest rewards will still go to those on middle and high incomes. Those earning above $52,000 will get back considerably more than those earning below it. As Greens leader James Shaw has already pointed out in his Budget speech, those earning $127 000 or more will receive a $33.22 a week tax break, while those on $24,000 or less, will get only $5.34 a week. (As mentioned, nothing in the Budget addressed the structural causes of income inequality.)

The current independent earner tax credit will be scrapped (partly because of its low uptake) and will be subsumed into an enhanced Working For Families tax credit. As mentioned, only some WFF recipients will stand to benefit from the changes to WFF tax credits, and some of the abatement measures envisaged will actually cut in earlier, and claw back some of the gains on offer.

Accommodation Supplement

Cumulatively, these changes will deliver only small relief to the living costs of vulnerable families. On that subject. the $20 boost to the accommodation supplement that the Budget offers to students who are eligible for the student allowance – while welcome in itself – has been all too typical of the tokenism on show yesterday.

As I asked Joyce at the Budget lockup: “ What is to stop landlords from treating this increase as a green light to hike up rents?” (Especially since the allowance rise kicks in on April 1st next year. Now, then and subsequently, it will be open season for landlords, on tenants.) In reply, Joyce said that the government would be “keeping an eye” on landlords, to ensure they did not abuse the situation. Golly, that’s sure to stop this measure from becoming a subsidy for landlords.

As NZ Student Association president Jonathan Gee pointed out to me, the supplement hike will only benefit the 33% of students eligible for the student allowance. While Gee welcomed the Budget’s recognition that students do face rising costs for accommodation….the approach taken in the Budget, he explains, will widen the gap between the minority already getting assistance, and the two thirds who are living off their student loans – thereby deepening the student debt crisis.

The pre-Budget calls made by NZUSA for a universal living allowance for all students have been ignored. Moreover, as NZUSA also points out, the accommodation allowance has been capped in the Budget at $60 in Auckland, Wellington and Christchurch alike – despite the fact that students in Auckland are paying on average an estimated $70 more in rent than those living in Christchurch.


Thankfully, the Budget continues to support Kiwirail and the national rail network – a no-brainer in other developed countries, but still contentious in some quarters here. These investments include $436 million for the first stage of Auckland’s City Rail Link and $98 million for upgrades to the Wellington metro rail network.

Mental Health

If I had to cite the prime example of the ‘smoke and mirrors’ aspects of this Budget, I’d have to pick the treatment meted out to mental health services. Bear with me. This is not an easy funding sector to measure, since there is no specific line allocation for mental health. (The funding is spread into all kinds of departmental corners.) The headline Budget allocation of a $224 million increase has to be measured against (a) the level of existing funding, and (b) the level of unmet need out there in the community. What do we know about both those things?

Thankfully, Health Minister Jonathan Coleman shed some useful light in a speech a few weeks ago. Coleman cited the funding level for mental health as being $1.4 billion in 2015/16.

To support this transformation there has been a significant investment in mental health services since 2008/09, with funding increasing by 18 per cent from $1.1 billion to $1.4 billion in 2015/16.

OK …in the same speech, Coleman also graphically described the level of demand out there in the community for mental health assistance:

Over the last decade demand for secondary mental health and addiction services has increased from 2.3 per cent to 3.6 per cent of the population, an increase from around 96,000 people, to almost 168,000 people. The numbers of people accessing specialist services are in line with international benchmarks for access to services. At the same time the number of people treated by services for alcohol and other drugs, including methamphetamine related substance use, has almost doubled since 2008/09.

So…. we’ve reaching a 3.6 % level of the total population, and giving them mental health care assistance. But Coleman was also conceding well before Budget day, that the level of existing need was far greater:

We know there are many people who might need help for a mental health issue, but who aren’t accessing the services available. For example, around 60 per cent of the people who die by suicide in New Zealand each year have not interacted with a mental health or addiction service in the previous 12 months.

Right. Extensive unmet need. Desperate measures required to meet them. So then, lets look closely at that $224 million funding boost allocated over four years in the Budget.

This sum consists of these ingredients:

$100 million for a new cross-government social investment fund that will target innovative new proposals to tackle mental health issues.
$4.1 million for the Ministry of Social Development to trial integrated employment and mental health services.
$11.6 million to help the Department of Corrections better manage and support prisoners at risk of self-harm.
$8 million in Vote Maori Development to extend the Rangatahi Suicide Prevention Fund.
$100 million for DHBs to support local mental health and addiction services as part of their total new budget spend through Vote Health. Individual DHBs are able to invest more if they feel it is required.

Righto. Despite all the hoopla about Budget surpluses, this amounts to only a $56 million annual increase on average, with only some of it being deployed in front line operations. $100 million of that four year spend of $224 million envisaged will come out of the funding increase given with the other hand to DHBs. Similarly, it remains unclear whether the other $100 million for the “cross government social investment fund” will be new money, or extracted from existing departmental allocations.

Point being, this response is not only inadequate for the level of existing service delivery – the 3.6% of the population – that Coleman had identified in his speech. According to the New Zealand Health Survey (NZHS) for 2015/16, seven per cent of New Zealanders reported suffering significant psychological distress during the preceding four weeks.

So, to sum up – the $56 million annual response is a mere drop in the bucket, in the context of a $1.4 billion annual budget for mental health services. This budgetary situation has been allowed to persist despite Coleman conceding that the system is currently treating only 3.6 % of the population, at a time when the reputable NZHS survey indicates – at page 32 – that the level of adult need in the community for mental health assistance is running at 7%, which is nearly twice the level of those currently being reached. Clearly, our vulnerable citizens are not being showered with the fruits of economic growth. If anything, they’re being starved of assistance, despite the $1.8 budget surplus available this year, and rising to $7.2 billion thereafter. If we judge ourselves by the way we care for the most vulnerable in our midst, then this Budget has to be judged a resounding failure.

Vote Health

Every year on Budget day, the government announces there is more money for health. Every year since 2009/10, the government fails to acknowledge that Vote Health’s share of the nation’s wealth (GDP) has actually been in decline for the past seven years. This year is no exception. Surpluses notwithstanding, the funding for public health (as a proportion of GDP) is still going backwards.

The evidence of what’s actually needed for the public health system to maintain its current levels of service can be found here. Likewise, the media reports on the recently published NZ Medical Journal published research by Professor Phil Bagshaw and his colleagues into unmet need at the secondary (ie, hospital) level of public healthcare can be found here.

As the Association of Salaried Medical Specialists has already pointed out in its preliminary Budget analysis, the Budget has delivered an actual shortfall in health funding, even to enable the system to maintain its current levels of service:

A preliminary analysis shows there is a total operational funding shortfall of approximately $300 million. The budget for district health boards (including money for new initiatives) is $12.683 billion. There is a funding shortfall of approximately $163 million in order to tread water.

“This was an opportunity for the Government to respond to the significant challenges facing New Zealand’s health system, and they failed to do so. This is just a continuation of the years of under-resourcing of public health, and it is very disappointing for our dedicated health workforce and their patients.”

Could the government have found more money to make genuine inroads into social need? Much has been made of the need for government to maintain a “buffer” for the economy against possible future shocks, by continuing to pay down this country’s already low levels of government debt. Apparently, the debt reduction target for government debt is 10-15 % of GDP lest – at some future date – another GFC or major earthquake occurs. Well, there is a point when rainy day prudence looks more like a casting around for an ideological excuse to avoid government spending, via finding an alternative bolt-hole for the money. Paying down government debt to the levels envisaged looks more like an ideological fixation than prudent saving for a rainy day. For many in the community, it has been raining their entire lives.

No doubt, the Budget will be packaged as evidence for National’s claims to being a prudent and thrifty steward of the economy. In an election year though, the public will still need some convincing that the provisions in this Budget are as good as it gets. For key sectors of social services, it looks more like Alice in Through the Looking Glass. Jam tomorrow, always.

“You couldn’t have [jam] if you did want it,” the Queen said. “The rule is, jam to-morrow and jam yesterday – but never jam to-day.”

“It must come sometimes to ‘jam to-day’,” Alice objected.

“No, it can’t,” said the Queen. “It’s jam every other day: to-day isn’t any other day, you know.”