On Newshub Nation: Simon Shepherd interviews Council of Trade Unions Economist Bill Rosenberg

Simon Shepherd: The government’s stuck fast to its fiscal responsibility rules in this year’s budget in a bid to boost business confidence, but has that come at a cost? It was aiming to be transformational, but critics say this year’s budget didn’t go far enough. CTU economist Bill Rosenberg joins me now. So the government says it’s going to do things differently, but is this budget really that transformative?
Bill Rosenberg: It’s a start, but it’s not transformative. It made some gains in some areas. So, for example, in health, we know that it actually, for the first time in seven years, has met the needs of growing population, ageing population and costs and so on. But there are a whole lot of very large unmet needs that are not addressed, and that’s kind of the story throughout the different eras of the budget as you work your way through. They’re starting to move, they’re showing a good sense of direction, but it’s not transformational.
OK, so is it not transformational because of this debt cap — the 20% debt cap? Are they constrained by that?
That is a very significant factor, yes. So they’ve got this debt target of 20% of GDP at a time when interest rates are very low and it’s very cheap to borrow. They couple that. It’s not only the debt cap; they’ve kind of got a pincer between the debt cap, their policy not to raise further taxes in this term of office, and a rough revenue cap at 30% of GDP. In fact, they’re only spending 28.5% of GDP on their core services.
So there’s some wiggle room there, you think — a little bit of wriggle room to spend more?
And so that wriggle room — they’re restrained from doing that by the amount that they’re doing in capital expenditure, that $40 billion that the minister talked about.
Yep.
The answer that we see in the short run is that they should expand their borrowing to cover that capital expenditure, because those returns on that in the future will bring in taxation and so on in the future, but the debt cap is preventing them from doing that.
Alright. They’re being too risk-averse, in your view, but aren’t they just trying to please the business community and to prove that they are fiscally responsible?
Well, that’s the politics of it, but, in fact, if you look at New Zealand’s debt situation, it is at the best end of the OECD. We’re seventh from the bottom in terms of the lowest net public debt levels in the OECD. If you include the New Zealand Super Fund in our debt calculations, which we should be doing, and international agencies and the Auditor-General all have that view, our debt levels are currently 7% of GDP falling to 2% of GDP. Our debt levels are not our greatest risk. Our greatest risk is in those social, economic, and those other areas of the public services that are just being squeezed, underfunded.
And so they’re underfunded; there are significant shortfalls, you’re saying, but you can’t expect the government to address ‘nine years of neglect’, as they say, in just one budget.
And I absolutely agree with that, but they could have made a much bigger start to it if they had relaxed some of those rules. The way they could go about it is that they’re talking about next budget being a wellbeing budget, and that’s going to be framed in terms of Treasury’s living standards framework, which looks not only at the fiscal and financial, but it looks at human capital, education, and those kinds of things — social capital, inequality, and environmental— natural capital, which is our environment. Now, what you need to do is you need to have a set of fiscal rules, if you like, and take account of all of those things rather than simply, you know, focusing solely on the financial.
Does that— if they’re going to take these wellbeing measures in to account in the next budget, that means they’ve got to throw away the current fiscal regulations or fiscal restrictions all together?
Not at all, no. I mean, fiscal responsibility in the sense of making sure that you are not building up huge amounts of debt in to the future that can’t be repaid are always going to be part of government, and Labour’s record, going back, has been, actually, pretty exemplary on those things, despite what people say. But the question is one of balance, and at the moment, government debt is not our biggest concern.
Alright. So you did mention health at the beginning of this interview — $4 billion in funding over the next four years. Is that enough?
So, if you look at— Just take this year. Those extensions are a bit of a…
OK, let’s take it from one year.
For one year, we’ve done a calculation over the last seven years of what’s necessary in the budget to just keep health standing still year to year.
Yep.
And, for the first time, this year we’ve found that there’s enough there to cover rising costs, rising population, the aging of the population —which increases health costs — and the new initiatives that the government announces. In the past years, those have just not been funded, those new initiatives.
So it’s ticking over?
It’s ticking over. But you look at things like mental health, where there’s been, over the years from 2009 to 2016, there’s been a 50% increase in people needing help, but funding only grew by a third of that frame.
Well, that’s right. During the election, Labour promised a fresh approach to mental health, including $43 million for a primary care program, and there’s counselling for under-25s. So is that a broken promise on their behalf?
Well, I mean, they are putting in place an inquiry, and one would hope that after that inquiry they will be very serious about putting more money in to it in a well thought out way. But that’s just one example of the different deficits. I mean, we’re seeing in hospitals not only the very obvious failures of our actual physical buildings, but staff under constant pressure and showing every sign of it, staffing shortages, patients turning up with even more serious conditions. All of these things are very significant pressures on the health system.
Okay. And one of those issues is the amount that we actually pay staff in the hospitals — and nurses. Now, the government seems to have squirrelled away $619 million over the four years in something called tagged contingencies. Is that where they’re hiding the money to deal with all these pay claims? Are they going to come through nurses, police, and teachers?
Well, so, they describe it as tagged contingency, and the narrative says we don’t tell people what’s in here because this is subject to commercial negotiations and wage negotiations, so only Grant could really tell you what that’s going to be used for.
But he probably wouldn’t anyway.
He probably wouldn’t anyway, for understandable reasons, but that is hopefully where they have some money to sort out some of these things. For example, for nurses and other health staff, there’s this panel set up to look at what is a good outcome from that. Hopefully they will have the money there to fund that when it comes up with a…
I think in one of your documents you said costs from collective bargaining pay equity for nurses over three years is going to be $750 million, so there seems to be a disparity between $619 million over for years and $750 million just for nurses. Is there going to be enough there? Will they have to enter their surplus?
Yeah, that wasn’t my costing, but certainly there are significant costs there, and it’s not only nursing, but in teaching, where you have staff shortages — difficult to recruit teachers. So there’s work that needs to be done there, and you could go on in other parts of the public service where there’s been, particularly in the core public services — biosecurity officers, social workers and so on who just haven’t had pay rises. There’s the pay equity settlements that are coming up. So there are big issues there that have been kind of sat on by the previous government, storing up these pressures for the incoming government.
One of those is education. You mentioned the teachers, but also there’s the ageing classrooms. $1.9 billion for education — is that going to cut the mustard?
I can’t judge that, but in health, for example, they put in $750 million extra for buildings and so on. So, there’s a $1.25 billion capital budget in health. That’s huge, and the question is only whether they can actually spend it in one year, rather than whether it’s enough in one year. In education, I can’t give you a judgement, but there are other build-ups in education. For example, in early childhood education, it’s nice that they’ve given some operational funding to early childhood; they haven’t had it in, I think, nine years or something like that. But then you have teachers looking after five 2-year-olds. I don’t know if you’ve got 2-year-olds.
I do.
One is a tonne. Five of them… You just don’t have education at that rate. So there are these build-ups in every area of the education budget.
So a lot for the government to deal with coming up. Thank you very much for your time, Bill Rosenberg.
Thank you.
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