What Budget 2017 spending promises look like when adjusted for inflation and population growth; Defence, education, health, welfare and law & order to fall; Super costs to rise through 2021

For all that talk of winners in this year's Budget, a deep dive into the numbers coupled with fundamental economic analysis paints a different picture.

Those wanting to dig a bit further into the Budget numbers, here are some tools to see how 2017’s numbers compared to previous years, and what levels of spending we’re set to see over the next four.

First, interest.co.nz has compiled a quick summary of all spending plans announced in Budget 2017. You can access that page here. And see our tax collection plan here.

Second, a very welcome addition to this year’s debate comes from Victoria University school of government research fellow Toby Moore and NZIER Principal Economist and Head of Public Good Derek Gill.

They have combined forces to provide a wealth of tables on real and per-capita adjusted budget spending data since 1993, looking out through the Budget forecasts to 2021.

And I encourage interest.co.nz readers to go through the numbers – they show the actual story of government spending and priorities.

In particular, the tab on real (ie. Adjusted for inflation) per person core government expenditure is an important addition to the debate.

For example, it indicates, that from 2016 through to June 2021, real per capita…

  • Core government services spending is set to fall 15%
  • Defence spending is set to fall 1.2%
  • Education spending is set to fall 7.9%
  • Finance costs are set to fall 10.9%
  • Health spending is set to fall 7.5%
  • Law and order spending is set to fall 1.4%
  • Welfare spending is set to fall 5.6%
  • NZ Super spending is set to rise 9.1%
  • All other expenses are set to rise 50.8%

It also includes nuggets like the weekly tax bill for the average taxpayer in 2016 vs 2021. Super costs jumps out as rising from $49.92 to $54.48 over that timeframe. That’s as the proportion of over-65s rises from 14.88% of the population to 16.37% (see the population tab).

And check out the Growth Rate (core) tab for comparisons of real per capita growth rates for spending classes between 2000 and 2009 and from 2009 onwards, against historical averages.

Why is this important?

The Treasury spending numbers in the Budget are always nominal – they tell us the amount government is expecting to spend on, say, health this year, next year, the year after that, and so on.

There is no adjustment for inflation. There is no adjustment for population growth. A 10% increase in something over that timeframe might in fact be negative when you take into account price rises and that there might be a greater number of people tapping government spending over the next four years.

Labour has promised to set up an independent Budget responsibility office. This project is not linked to that – it’s not political. But it might very well provide the first blueprint for how Budget documents might be held to account in future and discourage politicians from blathering on purely about nominal spending increases.

Here is what Vic Uni and NZIER have to say about the numbers:

Researchers at Victoria University of Wellington and the New Zealand Institute of Economic Research (NZIER) have found that while overall real per capita government spending is stable, a breakdown of new and projected Crown expenditure shows a significant transformation in the make-up of Government spending.

Education spending is projected to fall by 1.6% in the 2017 budget year, with spending falling relative to population and inflation by 7.9% by 2021.

Real per capita spending in health will fall slightly the coming Budget year (-0.1%), but over the forecast period is projected to fall to 7.5% below current levels by 2021.

Those areas seeing significant increases during the new Budget year include law and order (+5.3%), defence (+2.0%), and welfare (excluding New Zealand Superannuation) (+0.9%). However, all are projected to fall over the medium term as future operating allowances decrease.

Real per person spending on New Zealand Superannuation is set to increase steadily, with a 2.5% increase in 2017 rising to 9.1% above current levels in 2021.

Several smaller categories of spending have seen large increases in spending in 2017l, including economic and industrial services, transport and communication and environmental protection.

The attached table shows further breakdowns of real per capita spending changes.

Head of Victoria’s School of Government Professor Girol Karacaoglu says this analysis provides New Zealanders with a more accessible way to understand Government spending decisions.

“This Budget sets out a much-changed shape of the state when it comes to core services such as health, education and law and order, and it is important that New Zealanders have a solid understanding of what these changes mean in real, per capita terms.”

NZIER Principal Economist and Head of Public Good Derek Gill says the analysis will help put the spotlight on the quality of government spending.

“For example questions should be asked about the social return on the sharp increase in spending on law and order. Effective social investment would shift resources into the back-end of the justice system putting more effort in well targeted prevention rather than negative spending on the front-end of law and order system.”

PDF iconMethodology.pdf

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68 Comments

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14

The only winners are Landlords who will be getting an additional $110 a week in an increased accomodation supplement , more than anyone else in the whole country

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10

... yup ... this is an election year sugar-coated vote buying bribe budget ... Helen Clark would've been so proud of Mickey Cullen if he'd produced budgets like this ...

Oh wait ... he did ! ... which is why we're permanently shackled with WFF and interest-free student loans ... the Gnats are dutifully carrying on the social-welfarist policies of old Labour ... sweet pap for the huddled masses ... soft options , short cuts , rather than tougher but long term solutions ...

... so , we're not really interested in visionary infrastructure projects ... in upgrading the old , and building some new ... no money for improving our productivity ...

The Gnats have allowed 400 000 immigrants into NZ over the past 8 years , an 8 % increase in our population .... but the only infrastructure that has matched that population growth is not roads or electricity transmission , not new schools , no , it has been building new prisons ...

The Gummster Verdict on Budget : As a vote buying bribe for the September general election : A+

................................................ : As a boost to the country's productivity & house construction : Z-

You are too kind

After screwing education funding down to the bone for 8 years

The budget announced an education boost "proposing" to build 6 new schools for the whole of NZ
4 of them in Auckland - at say 2000 pupils per school that accommodates a monster 16000

Couple of weeks ago it was published that Rangitoto College in Browns Bay on the North Shore had a roll of 3200 - get yer head around that - would you send your kid there?

Brilliant observation - especially on the prison infrastructure.

I'm with you - when oh when oh when can we come up with a plan to unwind WFF and the Accommodation Supplement. Not all that concerned about interest free loans - I'd really rather that tertiary education was fully subsidised (i.e., free), particularly for students who have excelled in secondary and/or on an entrance test in a specialist area of study.

Surely to unwind WFF we need higher wages and lower cost(s) of living. What's the plans for that, I wonder?

It would be highly surprising if super actually fell, we've got 25 years of increased super costs ahead of us.

Less on health, education and welfare. These will certainly help drive the suicide rate higher. The finance minister should consider this instead of denying that the Government is contributing to the increased suicide rate.

I agree dictator - but wasn't certain I should mention it on this site for regret of being 'edited'. The stress people are under because of the current cost of living in NZ can't be understated. National are operating at a pretty superficial level - treating symptoms not causes.

WINZ also keep cutting off benefits due to administrative excuses and being intentionally difficult and obstructive (all due to the law the National put in place). This leaves people with no income to pay their rent, bills and to buy food. That adds additional stress when that's family income. What parent wouldn't be stressed about not being able buy food because some useless dick at WINZ misled the beneficiary leading to them having not money.

There's a reason why Mike King walked away from the suicide whitewashing panel. I made a submission myself with the issues around handling people who are suicidal, no doubt my comments will be disregarded as I am just an individual and MoH will be told by National what the result needs to be.

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14

Not sure about your take on things - but I feel the culture in NZ has changed a lot in the last 10 years. There seems to be a strong culture of 'every man for themselves'. It's a real shame to see. And those in positions of power and authority appear to be abusing the rights and responsibilities they hold.

Bring back the old NZ where we gave a damn about one another - and not just the value of our property portfolios....

What's frustrating is that it doesn't carry through consistently. People will espouse individual responsibility UNTIL it comes time, for example, to discuss means testing the pension on the value of one's primary residence. Then every man and his dairy cow is a fan of socialism again.

What does pension means testing have to do with "individual responsibility? " - what it would promote is obviously reckless spending of every cent you ever earned ( or hiding it somehow ) in order not to be disadvantaged .

Abolishing state pensions altogether would of course encourage individual responsibility - is this what you think should happen ?

The point is the inconsistency of argument and position held by folk. From personal responsibility to "state should provide for me", in a rapid turnaround.

Sure, it'll promote reckless spending in order to live a luxurious life on a minimal pension, just as the dole promotes reckless abandonment of employment by all and sundry.

What should we do? Maybe we should consider ideas such as means testing against the value of one's primary residence, or start with an open honour role through which people may publicly opt out of receiving the pension.

The pension was predicated on people owning their own house mortgage free in their retirement... Now the government has abdicated any measures that foster affordability home ownership (as previous governments and generations did) but still asks the young to fund the lifestyle of the older generation with the winning lottery ticket.

The point is the inconsistency of argument and position held by folk. From personal responsibility to "state should provide for me", in a rapid turnaround.

Sure, it'll promote reckless spending in order to live a luxurious life on a minimal pension, just as the dole promotes reckless abandonment of employment by all and sundry.

What should we do? Maybe we should consider ideas such as means testing against the value of one's primary residence, or start with an open honour role through which people may publicly opt out of receiving the pension.

The pension was predicated on people owning their own house mortgage free in their retirement... Now the government has abdicated any measures that foster affordability home ownership (as previous governments and generations did) but still asks the young to fund the lifestyle of the older generation with the winning lottery ticket.

"The pension was predicated on people owning their own house mortgage free in their retirement..." - source please ?

"Bring back the old NZ where we gave a damn about one another - and not just the value of our property portfolios...."

You mean before we idolised people such as Shonkey John?

I'm not going to say there is a direct correlation, but there might be some form of association.

Another book worth a read is Francis Wheen's 'When Mumbo Jumbo Conquered the World', about the role of halfwitted doctrines and pseudo-scientific management and political theories that warped the thinking of politicians in the 80s and 90s. Such as Margaret Thatcher going swivelly-eyed gaga over con-artists in red braces and ranting at anyone who would listen that we should be idolising bankers and speculators. Half the bottom feeders she was holding up as aspirational role models were bankrupt or in jail within a couple of years, but the brainwashing remains.

I was discussing this exact point recently. NZ I feel has become quite a selfish country, and peoples attitudes have changed. Also there are too many people trying to exploit people.
I don't know if this change has anything to do with the fact that we are now a more global country, and have cultural micro societies. It is something though that is impossible to measure through statistics etc.

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16

We already one of the worst youth suicide rates in the developed world, and are in the top 10 for suicide rate per 100,000. I have depression, and I know of a few people my own age (23 to 33) who have committed suicide as a direct or indirect result of National's policies (rapid house price inflation, rising cost of living, high immigration levels leading to lower wages and higher competition for jobs etc.) for the last 8 years.

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11

I know two people that have committed suicide in the last year. They're from the group of my much younger friends. Low wages, high living costs make people feel like shit and it just adds to their problems. It's sad to see and it's disturbing that changes could be made but the Government is refusing to do so.

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13

I'm sorry to hear that, Dictator. I can definitely empathise with that situation also. Sending out CVS every day and getting no replies, getting undercut for jobs by immigrants who accept the minimum wage, not getting a graduate position and finding out 60 others applied, rising cost of living, stagnant wage inflation, trying to scrimp and save yet barely keeping your head above water... It breeds apathy and futility, and destroys happiness and optimism.

In the end all National care about are the pensioner voting block, and kissing ass of multinational corporates or tax evading 1%ers. Ignoring children, young potential workers and the core working age population is very regressive.

The restrictions on innovation and job creation by changing the Building Code and telling local Councils to be highly abusive in their processing of consents under Maurice Williamson has made these problems worse. They put Maurice Williamson on the back bench when they found out he'd led a major cock up but Nick Smith has done nothing to accelerate fixing the problems.

We would be better off if we didn't have an anti-business Government in power.

Next comes nationalism, extremism etc.

Don't forget crime Rick. As the rich lose all empathy, so do the poor and disenfranchised. Walls get higher and crime more violent. I have seen this in my travels. in Zimbabwe, South Africa, Solomon Islands etc it is not a pretty thing. Look for the wringing of hands in 4 years, when National is looking at a fifth term... "how did things get this bad?" Will be their loud and plaintive wail..

They've been starving the police of resources for years, along with all the other agencies and institutions affected by soaring population. And all at a time where we've been importing lots of organised crime, money laundering and corruption. It's contacts in China for Contac NT, precursors and pre-made ice that's making the meth epidemic so profitable and unstoppable.

What the hell is left for our local youngsters just starting out? Going into the illegal drug trade, armos and carjacking just makes rational sense.

Gen Hub - This is already happening as the Indian dairies get hit by young Kiwis.

Shades of Fiji as the Indians took over commerce causing discontent which led to the 2006 coup.

absolutely Samlltown. Another example, in a middle class suburb on the North Shore, the local kids from the not so good neighbourhood, go to the local Chinese Take Away and strong arm the shop owner to give them free food. They ride around on the back wheel of their bicycles intimidating the locals, worse their bad behaviour is escalating and they are becoming quite aggressive... these kids range in age from about 10 to 15... this is not good! Robbed of hope, they will become hardened criminals and the rich will NOT be safe behind their walls!

There were 3 coups - Sitiveni Rambuka (1) and Frank Bainimarama (2)

In NZ milk-bars and dairies are seen as soft targets

In AU in, 8 years ago, International Indian students were seen as soft targets and victimised and attacked resulting in international student rolls of 170,000 falling by half

https://www.google.com.au/#q=indian+crime+melbourne+student+attacks&spf=...

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11

This sort of thing is why I think it's critical that we start to address housing affordability etc.

Me and mine are okay, but masses of young NZers will not be anywhere near as okay as long as we continue down a road that perpetuates growing inequality of opportunity. I spent a number of years working to alleviate poverty in a third world country, and I'm uncomfortable with the growing parallels I see increasing in the directions we're taking NZ.

I am NOT a proponent of equality of outcomes, but I AM a proponent of equality of opportunity. The problem is, we kid ourselves if we think we have equality of opportunity right now, and I'm only seeing it decreasing.

Am reading this book at the moment, which others might also find of value: http://inequality.org/born-on-third-base/ You can get it from Unity Books, locally.

How long before we get one of those 'take some of those bastards with me' message-sending suicides?

Problem with Rich mind set is that they feel by giving away few $$ to low and middle class is a BIG thing to keep them quite and win vote.

People in power feel that few $$ is good enough for poor and middle class and should be blessed and house ownership is for RICH who can afford and speculate at this stage.

sadly it is enough and they win votes... Would you like a blanket with that musket, Sir?

I get the tone of the commentary here, but the question is still not asked. Within this budget, what provisions are there for the costs of running the Government? All spending indicates a net decrease which means Government workers will struggle to get any significant pay rise, but what of the Pollies themselves? Does the parliamentary payroll budget take an equivalent decrease? Or are we too afraid to ask the question?

Yes, good to see this type of analysis, Alex.

The thing that I find worrying is the media commentary in the hours after these budget releases are made. For example, describing this budget as a "lolly scramble" implies a positive net effect for NZers, i.e., a sweetener.

But the reality of what they are doing is much more cynical than that. Our tax brackets should be automatically inflation-adjusted, for example, so that wage-earning taxpayers don't get ripped off for years while the government allows inflation to improve its coffers at the expense of wage earners. The same goes for accommodation supplements, the minimum wage, social services departmental and health budgets and so on and so forth. Inflation-adjustment seems to me to be a social duty of governments.

The reason they don't automatically inflation-adjust (aside from the pension, that is!) I suspect is because they want to preserve the ruse and look like they are providing 'sweeteners' when in fact they are simply tweeking the rip off.

It is becoming more and more clear to me that Gareth Morgan's TOP might be the only political party prepared to stop the ruse and make the hard decisions needed to put us back on a democratically robust and (hopefully) sustainable path.

Subsidising ag polluters, Hollywood and other industries perceived to be flavour of the day; whilst supplementing cost of living rises with tax transfers; and growing the economy through population numbers is a dead end game. Their 'bets' on the former will likely be wrong;we'll never be able to unwind the need for those tax transfers; and all the new folks we are welcoming will swell the ranks of those needing assistance.

Poorer economic management would be hard to find.

The cynical part of me thinks that no politician has any interest in inflation indexing and if anyone was brave enough to do it future parties would "massage" the meaning of inflation measures to manipulate the results.

Yes, we can all agree ag is polluting, that's the easy part. The 64,000 question is what to replace it with, do the figures really stack up?

Poorer economic performance is everywhere:

Inflation is now running at 10.4% in Egypt,
Youth unemployment is over 40% in Spain,
Greece is totally bankrupt,
Turkey is building a trade deficit and falling into a dictatorship,
South Africa (now a junk bond) have backwards GDP and regular power outages, in major cities,
France has unemployment over 10% now and government spending is over 55% of the economy,
Venezuela has the world largest negative growth (-8%) and has moved to rationing,
Brazil has been in recession since 2014 and is beset by corruption,
Australia blew the largest commodities boom in living memory and now has exploding budget deficits.

I suppose we could put in North Korea and Zimbabwe if we really wanted a good laugh.

This is a budget that Michael Cullen could have delivered - rather moderate middle of the road. That's the problem for Labour they have given up on the centre and handed it to National. Who holds the centre governs the country.

Sick & tired about everyone whinging about the budget. The government made a surplus and is giving back to the people, be happy

I make 95k a year. I pay my tax. I get no breaks, can't afford a house, not even an 'affordable' 650k one. I see the poor catching a break, the rich an even bigger one. Yet I represent your average hard working Kiwi. Middle, middle class being totally screwed over, so overseas and local investors/landlords can make a massive profit.
Waving fist.... damn you National!

General HubHub are you single or in a partnership? Do you have children? I have found that having a hard working wife that brings in a good income is one of the most valuable assets you can have.
If you are single I don't see why you cannot afford an apartment or single bedroom place. If you are married you will need to send the wife out to work for the first few years. Unfortunately this is just the way it is now. Dual income families are your main competitors for entry level three bedroom houses. I started my family in a two bedroom flat and had the in-laws stay with us for a couple of years in the early 2000s.. My wife and I and two toddlers slept in the same room with a double bed and a bunk bed.
I know this comes across as boomersplaining. Reminds me of my granddad telling me I didn't know what hard work was so sorry about that.
However if you are single today an apartment in the city and a scooter to whizz about town sounds quite appealing. You could hire a car when needed and also just lock up the apartment and jet overseas for nice backpacking holidays fairly cheaply. Life could be good just different to 1950's NZ.

The system is made for couples, because unless you are in a couple, or live in a small town with cheaper houses, it is unlikely a single person can afford to buy a house very easily.

Hi GHH,
How about this,
1) You decide to be happy for the less fortunate to catch a tax break
2) You decide on this rainy Saturday to draw up a budget for yourself to be able to buy a house in 5 years time. (break down your budget into shorter, achievable goals). You earn good money, more than me, congrats, you will be able to buy a house if you put your mind to it

Am pleased for the struggling masses!

That's why the house prices need to be HALVED instead of DOUBLED.

In what world DGZ?

In DGZ world. A good place to start.

With house prices over three million there? Yeah, nah! That's not where people start.

I mean for house prices to start coming down in half...yes DGZ it is a good place to start.

Yeah, I just can't see that happening DGZ. It would be great if prices did drop. But I see here on the North Shore of Auckland, house prices are selling like hot coffee on a cold Monday morning! Looks like those buyers who aren't allowed to buy property with their $50000 US a year are back.

That is going to disappoint a whole bunch of people on this site.

No I don't want the Auckland house prices to drop, I want them to CRASH, and it looks like the best thing to do to crash the housing market is to vote for Labour which is what I am going to do.

You're being tongue in cheek I know. I've been following your comments for a couple of years now and you have gleefully and regularly written how you want the poor to leave your rich Elysium. You can't do that for years, then suddenly wishing for a catastrophe to save poor hard working families.

Don't associate me with DGZ blue meanie. This new iteration of DGZ is worse than the old one. We really are different people. Apparently even with a 50% crash he will still be okay....nice. He just seems thoughtless.

Thank goodnes now with completely different viewpoints people can no longer say we are the same LOL. To be honest I have been struggling with the double identity for a long time now and I need to break free, and this is what it takes. Sorry Zach!!

To be fair to Double-GZ, the whole Elysium rant is from Zachary (Though some who argue that they're the same person). Zachary simply can't face the reality that property prices are falling in Auckland.

At least Double-GZ has accepted the reality of the situation (And no I don't think you're Zachary DGZ) ;)

Yeah right! On all accounts.

Indeed, I remain a strong advocate of the Elysium hypothesis. Don't forget it is not just a movie but part of Greek mythology too.

And you remain just as offensive.

Is your current station in life the product of your own endeavours or inherited wealth - are your olds still around

I inherited around 50k from my parents estate. I also lost over half my wealth from a divorce twenty years ago. My parents helped me buy my first house.

If it was *your* wealth Zachary, you wouldn't have lost it. Marriage is a partnership, so the wealth always belonged to both of you, which is why half of it was given to your ex wife.

Also, in reference to your advise to General Hubbub above; one of the lovely things about it not being the 50's, is also that you don't "send" the wife out, as she is not your property.
Because of the crazy notion, known as equal rights, couples decide together about the contribution and roles they will each make, based on their jointly agreed priorities.
One might also not consider her an "asset" and describe her in the same context that you would describe a chattel. Many consider their wives as equal partner these days, isn't that quaint?
We also try (and I know it's hard for some chaps) to acknowledge that being a stay at home parent is hard work, so the inference that an earning partner is "hardworking" and a stay at home one is not, can also, stay in the 50's.

2otherguys & gingerninja, Zach's or anyone else's wealth is none of your business

My comment was a social/political one. Not a financial one.

explain

I can guess - but could be wrong - please explain
Is this insider knowledge - or what you are seeing at auctions

"Those buyers who aren't allowed to buy property with their USD $50000 a year are back"

Those investors that everyone said have gone.

Around 80 per cent of Chinese buyers will not be able to settle because of trouble getting finance, according to Ming Li, a real estate agent in Melbourne's eastern suburbs who specialises in selling Australian property to Chinese investors.

https://www.reddit.com/r/AusFinance/comments/6d7n82/chinese_investors_pu...

I cycle most days around the back of Massey, down Royal Rd to the water, and side streets. Of late I have noticed houses for sale, recently sold! Also I see quite a number of those 'vacant' properties that are mentioned on this site. So BM you might be right!