Crown Expenditure
January 28th, 2006 at 9:46 pm by David FarrarNo Right Turn disagrees with John Key that the Government has massively expanded government spending since 1999 and claims that core crown expenditure has decreased from 35.1% of GDP to 30.6% of GDP and hence no massive increase.
Now this is an excellent case of using the wrong statistic. You see John Key was talking about the role of government expenditure in fuelling inflation and a comparison to GDP is almost meaningless in that context.
In fact the entire notion that if the economy grows by 5% then the Government should be inventing new things to spend money on to keep its percentage up is bizarre. During times of good economic growth one will in fact have considerably less core expenditure as there are less people on welfare. Hence the increases we have seen are all the more remarkable.
Government expenditure as a percentage of GDP is a useful statistic for overseas comparisons, but using it to argue that expenditure is not increasing is silly. One will find that almost every country in the developed world has its expenditure as a percentage of GDP decreasing during times of economic growth. In fact if your crown expenditure does increase faster than your economy as a whole you are heading into trouble.
Now let’s look at crown expenditure from 2000 (the last financial year of a National budget) to 2005 and beyond.
In 2000 total government expenditure (incl SOEs) was $40.1b and in just five years it is 50% higher at $60.9b. This is an increase even as a % of GDP from 36.5% to 40.3%. And it is projected to keep increasing. So the state is growing as a proportion of the economy.
Now even if one takes only core crown expenditure then in 2000 it was $34.5b and in 2005 it was $46.2b. This year it is budgeted to be $50.7b. Now yes as a % of GDP it has shrunk from 31.4% of GDP to 30.6% but see comments above about the inappropriateness of this measure when talking about effects in inflation. Also even if one persists with that measure well by 2008 it is projected to be back up to 32.6%.
Talking of inflation, even adjusting into real 2005 dollars, we have seen core expenditure increase by $7.2 billion beyond inflation in just five years.
Going back to the argument that somehow crown expenditure should increase to keep pace with GDP. Well I’d then ask NRT if that means it should be cut if there is a recession, and if so does that mean he agrees it was right to cut benefits in 1991?
All historical figures quoted above come from an old parliamentary library spreadsheet which tracks crown expenditure. 2005 figures from Treasury.
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January 28th, 2006 at 10:32 pm
Does local govt spending figure anywhere in this?
Vote:January 28th, 2006 at 11:23 pm
Again, the sooner this temporary unconstitutional gerrymander can be defeated, the sooner Brash&Key can deal with this once and for all:
– sell off all Health and Education assets
– terminate all benefit payments
– entrench tax cuts get to flat maximum 10K per hetero family
– stop everything else except defense
would fix basically *all* NZ’s problems, and would take about two days parliamentary sittiing time!
Vote:January 28th, 2006 at 11:24 pm
Lindsay – No, regional and local council expenditure is completely separate.
DPF – Well put!
Vote:January 28th, 2006 at 11:36 pm
No. Central only.
Vote:January 28th, 2006 at 11:42 pm
In fact the entire notion that if the economy grows by 5% then the Government should be inventing new things to spend money on to keep its percentage up is bizarre.
Dave. It is your assertion that is totally bizarre for two simple reasons I can think of:
1. The govt is about 1/3rd of the total economy, and it is profoundly and tightly coupled to the private sector in a myriad ways. It is quite bizarre to suggest that the public sector is not permitted ANY real growth, while the rest of the economy does.
2. On the other hand if we are to follow your suggested rule, and freeeze public sector spending in real terms, then over a period of decades the gap between the public and private sector would become grotesque. Imagine trying to run a modern govt in the year 2006, with a budget fixed 100 years earlier in 1906!!
This data from the Congression Budget Office is sobering:
http://www.cbo.gov/showdoc.cfm?index=3521&sequence=0
If you check this link similar numbers for the USA show that Federal spending from 1962-2001(which does not include State and County spending) has held in the range of 18-23%, with much of the decline in the last two decades concentrated in the Defense area (The so-called Cold War dividend). So over a period of 4 decades even the US govt, the bastion of Conservative economics in the world, has maintained it’s core spending as a proportion of GDP in a fairly tight range.
I also suggest you scroll down a little to Figure 2 and have a look at what the projected interest expenses on the Federal deficit is projected to do!!
Vote:January 29th, 2006 at 8:34 am
With such a huge surplus I would be interested to know what the tax take as a percentage of GDP is. Becuase that enormous tax take is at the expense of the living standards of ordinary New Zealanders. They are simply arrogant c**ts when they make the Crown so rich at the expense of the living standards of ordinary New Zealanders. As for this notion that people earning over about $60,000 are rich that is just laughable.
Vote:January 29th, 2006 at 9:03 am
Just a few areas: Prisons, national and all the right wing parties support more locked up offenders, ipso facto, more prison cells, more prison guards more expenditure.
Vote:The health system is growing with more complex procedures as the population ages, plus more expensive diagnostic tools for existing procedures, more and more expensive drugs available( even though we have a tightly regulated process for putting new drugs on the free schedule). Nurses and doctors are part of the global economy so we have (try) to pay world rates to have all of the above at all.
Biosecurity is an area that will see more demand for greater government action.
Immigration was a total scandal under National, where the demand in NZ for permits and approvals grew massively under Auckland had only one city office, whereby if you didn
January 29th, 2006 at 9:20 am
Very well written. I read the post on No Right Turn about government spending and found it quite amusing. As you’ve explained, No Right Turn has been highly selective with his information.
As we all know, Labour has increased government spending substantially during the last six years. Of course, they’ve been relatively moderate (in comparison to historic Labour governments). Their increases have been quite tame compared to the terrible wastage caused by the Kirk and Lange governments.
Nevertheless, it’s a basic fact that Labour have been throwing money at selectivie political groups during their entire six years in office.
Vote:January 29th, 2006 at 9:35 am
Look at power ditribution, once they were local authority utilities, ie part of the government sector. Now they are all commercial companies and the cost of delivering their services has risen massively. This is a direct example where users were billed for services rather then charged taxes for their use, moving to a full commercial process has raised the costs!
Vote:Do the same to health and the actual costs will rocket, the same to education and I would see the costs rise enormously over and above the current government share.
January 29th, 2006 at 10:16 am
An issue none of you seem to touch on here: how much of the spending is actually of good quality (however you wish to define that term)? Proportions of GDP, real versus nominal, those are arguments you ought to be having AFTER looking at the question of waste. I should know: the NZ taxpayer once paid me handsomely, to sit at a desk and do nothing. The agency involved had no work for me to do, they just wanted to keep headcount up in that particular area. You guys paid me thousands! But rest assured I didn’t waste the time; I used it to study for my personal certfications exams. Many thanks.
A gold star to the first person to guess which agency I was contracting to.
Vote:January 29th, 2006 at 10:53 am
James,
As we all know, Labour has increased government spending substantially during the last six years.
I don’t. I look at the govt spending as a proportion of GDP and see that it has decreased slightly. All you are conveying here is some right wing nostrum that you want to believe, no matter how much it contradicts reality. Look at the US Congressional Budget Office link I gave above….note carefully that the data is presented not in real dollars, but as a proportion of GDP. And this is how this kind of data is measured almost everywhere I look…that is the reality.
The debate here is simple. How to benchmark govt spending and the options on the table are:
1. That govt spending should be fixed in real terms at some point in time. ie it only keeps pace with inflation.
2. That govt spending is fixed as a proportion of GDP, ie it keeps pace with total economic growth.
Bear in mind that GDP is measured in real terms, ie any positive GDP growth is over and above inflation, and that over a period of decades wealth generation will the gap between the two measures to inexorably grow. For example just a 2% GDP growth over a period of 100 years is a compound growth of 720% over and above inflation!! If govt spending was constrained only to grow at the rate of inflation, then over time it would shrink as a proportion of the economy, and go on shrinking forever until it became quite meaningless. At that point you have no government of any use whatsoever. Now that may suit those of you to the right of the ACT party, but it is entirely unsane within the context of any serious political discourse.
Vote:January 29th, 2006 at 11:01 am
“and that over a period of decades wealth generation will the gap between the two measures to inexorably grow. ”
Shoul be:
and that over a period of decades wealth generation will cause the gap between the two measures to inexorably grow.
Vote:January 29th, 2006 at 10:07 pm
Logix,
What’s up with you lefties: Why do you love GDP so much? GDP is a crap statistic and it is ridiculous to say that government spending should be some proportion of GDP. I don’t have time right now to explain all the problems with GDP, suffice it to say that if the government engaged in some totally ridiculous project like building a 100 story extension to parliament, this would be counted as economic growth by the GDP.
Vote:January 29th, 2006 at 10:56 pm
it is ridiculous to say that government spending should be some proportion of GDP
What just because you don’t like the result it gives you in this case you are slagging it off. Yet if perchance GDP should drop due to a recession you would be the first screaming that it is all the Leftie Government fault.
And if you think it is such a crap statistic, why then does the USA Congressional Budget Office, hardly a hotbed of leftie wrongness, see fit to use it?
http://www.cbo.gov/showdoc.cfm?index=3521&sequence=0
As does almost every other economist in the world. I agree that it has it’s shortcominings, but they have relatively little to do with the tax debate.
And I can counter your silly example easily. If the population of a country was to double over some period, and as a result the GDP doubled for no other reason, then are you trying to tell me that govt spending would have to remain fixed and not reflect the change in population?
How about reading some of my posts above Brian, having a little think, and then try actually refuting my argument with some actual evidence or logic. You know I would welcome it if you could actually point to some hole in my thinking here; even better if you could propose some other way of benchmarking govt spending over time.
Vote:January 30th, 2006 at 12:18 am
if the government engaged in some totally ridiculous project like building a 100 story extension to parliament, this would be counted as economic growth by the GDP.
Actually not only is you example silly in the context of the discussion we are having (ie tax rates), but on reflection I realise it actually reinforces the point I am making. During a major recession or depression even, during which GDP is static or negative, governments typically engage on significant public sector infrastructure projects in order to help re-stimulate GDP and the private sector. In other words when GDP growth is low, the govt spending increases to compensate, and vice versa when GDP growth is high. But over the total business cycle I would expect public sector spending and private sector spending to closely track each other.
Of course public and private sector spending are not forever welded together in lockstep at some magic proportion. It will drop if you cut into health, education or superannuation spending, or other major departmental activities. But seeing as how there is no political mandate in NZ to do this, then there is no reason to expect the proportion to change much. And indeed that is what we have seen.
Using DPF’s own figures we can see from the year 2000, the last Nat govt budget year, to 2006, GDP has grown by about 4% pa, or a compound growth of about 26%. And in that time core govt spending has grown by $7.1b or about only about 15%, so there is evidence is that in fact Cullen has been rather tightfisted with the taxpayer’s purse. (And that DPF likes to twist figures to suit his purpose. A fine quality in a pollster I should imagine.)
If you want to propose some other benchmarking mechanism then do so with some evidence and reasoning, but just blustering with “Because I Said So” assertions really doesn’t cut it.
Vote:January 30th, 2006 at 9:21 am
“And that DPF likes to twist figures to suit his purpose. A fine quality in a pollster I should imagine.”
I now know what the ‘P’ in DPF stands for: Parrot
Vote:January 30th, 2006 at 9:33 am
Well done Logix – comparing real expenditure growth to nominal GDP growth. D- grade.
Vote:January 30th, 2006 at 10:32 am
I simply averaged the REAL GDP growth from the graph below:
http://www.rbnz.govt.nz/keygraphs/Fig2.html
On closer look I accept that an average of 4% over the period in question is a little high. If I use 3.5% then the compound growth is about 22%. Still compares favourably with the core expenditure growth of 15%.
Vote: