The 2016 budget is billed as a “social investment” budget. A whole section is under that title.
After seven years of stringency and more-with-less reprioritising, there is some relaxation of social and other spending — but tagged with an “investment theme” and geared to defined outcomes tested by departments’ chief science advisers.
Some new spending is essentially filling potholes to offset rapid population growth through immigration — and offset potential election-year embarrassment.
The biggest pothole is health. Population growth, ageing and cost pressures have outstripped resources, building votes for opposition parties. Even with the big budget lift, Council of Trade Unions economist Bill Rosenberg calculates that in the coming July-June year hospitals will still be short by $107 million and the whole sector short by $304 million. But ministers will be able to point to the boost.
There is also more for housing, already a political embarrassment, to go with non-budget measures, including a big-stick urban development national policy statement due soon.
Politically, those parts of the budget may reassure middle New Zealand the government is on the case and limit desertion to opposition parties.
Politically, they are defensive.
The “social investment” funding is front-foot politics, aiming to outpoint opposition parties.
It aims to save costs in the future with targeted investment upfront. A range of budget initiatives comes under this heading — most notably expanded “most vulnerable” children’s services, including special schools funding, but also, significantly, for whanau ora and for offenders leaving prison.
Bill English talked at his press conference of a “pipeline of smarter intervention for our families”.
The budget also lifts investment in infrastructure, including in school classrooms, aimed at supporting a “growing economy”, the budget’s official title.
But this “investment” goes only so far.
A Steven Joyce budget release says “cross-government investment in science and innovation” will rise to $1.6 billion in the 2019-20 year. That will be 0.53% of GDP (projected by the Treasury to be $300 billion in 2019-20). That is still far below the OECD average and not a real increase.
Don’t worry, the budget says. Tourism will see us right and extra funds were announced earlier this month for desperately needed infrastructure in the top tourism towns. Pity about the wages.
Underlying the spending lift are optimistic Treasury numbers for the economy which assume no big shock.
English has weathered two shocks: the global financial crisis and the Christchurch earthquakes (total cost to the government so far $17 billion). The fiscal balance squeezed back into positive territory last year and is forecast to climb steeply to 6.7% of GDP in 2019-20.
That trajectory would get net government debt down to just under 20% of GDP by 2019-20 which, alongside growing economic resilience, gives fiscal resilience that is the envy of other countries.
If, that is, there are no tax adjustments. Which you can expect next year’s election-year budget to signal. As English candidly said yesterday, you can’t have someone on the average wage paying the top marginal rate.