Every three years around this time, the election campaign begins to feel a bit like the old carnival Ghost Train. All aboard. After the lurch into darkness and after careening around the first corners, a few jangly skeletons – Budgetary holes! More debt! – come dropping down from the ceiling. Amid the cobwebs and spooky music…whooo…can that be the scary ghost of additional new taxes? Shut your eyes and hold on tight to your loved one. It will soon be over.
Finding holes in the other crowd’s “budgeting” happens to be an ancient election campaign tradition. See the 2020 headlines about the $4 billion “hole” in National’s finances. See the 2023 headlines about claims that Nicola Willis was “lying” about a “hole” in Labour’s GST calculations, a charge Willis denied. Yet for the record, the alleged “hole” didn’t exist. See election 2017, and the claim by National’s finance whiz Steven Joyce of an $11.7 billion hole in Labour’s finances. The majority of economists and economic commentators said Joyce was wrong but by then, the claim had been widely reported. Mission accomplished.
Meaning: the real purpose of these “gotcha” gestures about budgetary holes has nothing much to do with reality, and everything to do with perceptions. They are about which major party can package itself as being the most competent steward of the nation’s finances. Routinely, that “competence” means treating the balancing of the books as a higher priority than addressing social needs, or borrowing to invest in productive technology and infrastructure. It has to do with what the government chooses as its priorities, rather than what the nation can afford. Newsflash: we can afford more than what the advocates of Small Government tell us to be the gospel truth.
In the case of Finance Minister Nicola Willis it is plainly not her priority – for example – to address the fact that women need to be paid fairly for the work they do. By Willis’ own calculations, pay equity would cost circa $10 billion over four years, or $2.5 billion a year. That is less than the annual $3 billion tax break she gave to landlords. Pay equity would also cost considerably less than some of National’s Roads of National Significance. In short, what the nation can afford is largely a reflection of what it treats as being a necessity. Time and again, voters elect governments that make a virtue out of painting the public’s priorities as an extravagance.
The politics of frustration
For example: do most voters really think that women deserve to be paid less than men for equivalent work? Hardly. Would Willis herself expect to be paid less as Finance Minister by virtue of being a woman than what a male colleague would commonly receive in an equivalent ministerial portfolio? It would seem so.
The claims about Labour’s budgetary hole is really about trying to force Labour to publicly bow down before the twin idols of neo-liberal economic orthodoxy – no more debt, no new taxes. The UK Labour Party under Keir Starmer offers a pretty clear warning about the dangers of falling into such traps. To shore up its credibility with the markets, UK Labour made a manifesto commitment not to raise taxes, and this has led to regular U-turns on government spending – and a surge in public outrage at Labour’s perpetuation of Tory austerity. In similar vein…in order to appease public fears about migrants, Starmer then clamped down on immigration, thereby creating shortages of medical staff and other labour shortfalls; and without achieving any noticeable reduction in public anger.
In short…the ghosts of unaffordability only become real if you treat them as such. As Bernard Hickey eloquently pointed out earlier this month, New Zealand’s assets actually exceed its liabilities by a sizeable margin. My apologies for quoting Hickey so extensively… but the points he made are so rarely a part of the limited “debate” on our socio-economic options. For starters:
New Zealand’s Gross Debt to GDP is barely 40% of GDP and, most importantly, it has total assets of $611 billion, as well as total liabilities of $426 billion. That means the Government has a current net worth of $185 billion and it is forecast to rise to $207 billion by the middle of 2030.
Aa he says, it is “astonishing” that the asset side of the equation is routinely ignored in the debate on what is socially affordable, given that any household analogy would definitely include the family assets. And as with any mortgage, due attention would also be paid to the affordability of the interest costs :
The oft-cited $9 billion figure is…a gross figure that doesn’t take into account either interest receipts the Government gets or the dividends it receives each year from state owned enterprises and others. For example, the Government reported in its Crown Accounts last week that interest costs were $8.5 billion in the 10 months to the end of April this year, while interest receipts and dividends were $6.2 billion. That means the net interest costs of $2.3 billion represent barely 2% of the Government’s revenues over the same period. [My emphasis]
As Hickey then indicates, there is a moral dimension here that – for reasons of political convenience and media convention – is routinely ignored:
Just imagine telling your neighbour that your debt was so worrying that you were prepared to leave your kids homeless and sick living in a garages. And then telling the neighbour when they asked how bad the debt was saying that it cost 2% of your wages to service. Would you be embarrassed to say that?
Especially when you had the special power to tax everyone on the street in the event something went wrong. And you also had the power to invent money if something went wrong. And that you had a fixed rate mortgage in your own currency that meant if interest rates went up suddenly and the New Zealand dollar fell because of a crisis that your interest costs would not change a cent. How would you look your neighbour in the eye and say you were quite happy for your kids to catch pneumonia and end up in A&E because your interest costs might rise to 2.2% of your income if you chose to build a house instead?
That, he says, is what our Government is doing, and everyone seems pretty relaxed about it :
Or at least simply accepts it as a fact of life. It’s not. It’s a choice. And a brutal one at that with the costs being paid by those who can least afford it, with the damage likely to last generations and ultimately cost the taxpayer much more in health, education, lost production, court and prison costs.
Meaning: taking on more debt for socially beneficially purposes should not be being treated as a capital crime. Neither should the levying of land taxes, or a one-off windfall tax on those sectors (supermarkets, banks) best able to afford it. Nor should a wealth tax. They are all affordable, viable options. Keep this in mind next time you hear Nicola Willis patting herself on the back for how carefully and competently she is managing the books and getting them back in surplus on time, while the rest of the country burns.
Rodrigo & Smith
The creative collaboration between 23 year old Olivia Rodrigo and 67 year old Robert Smith of the Cure really kicked into high gear at Glastonbury last year. Since then, their mutual appreciation as songwriters and as performers has been pretty heart-warming to behold. Here from Glastonbury 2025 is their joint rendition of the Cure classic “Friday I’m In Love”…
On her excellent new album You Seem Pretty Sad For A Girl So In Love, Rodrigo worked with Smith once again, on “What’s Wrong With Me…”