Fallow on Government Spending

July 23rd, 2009 at 8:23 am by David Farrar

A good piece by Brian Fallow:

The government is a large part of the non-tradeables sector, which over the past five years has grown by 15 per cent. The tradeables sector, said Whitehead, where the country earns its living as a trading nation, contracted by 10 per cent.

Even without the global recession, this was going to catch up with us.

“In other words the public sector has to raise its productivity – provide more for every dollar spent – and grow more slowly than the private and export sectors, to rebalance the economy.”

This is key. The Government sector should not grow faster than the private sector. The private sector funds the Government sector.

Easier said than done, one suspects, but they will need to all the same. The budget allowance for new spending has been slashed and as debt mounts a growing share of revenue will be pre-empted by higher interest costs.

And this is worth remembering. Every daft proposal by Labour to borrow and spend means greater financing costs for the next decade or two. That means either less spending in other areas or tax increases.

The bottom-line arithmetic is that, even with serious fiscal restraint, chronic deficits and mounting debt will be part of the legacy of this recession. All else being equal, this represents upside risk to interest rates.

It will also make it much harder to accomplish the kind of tax reform that the economy needs.

Significant structural changes to the tax system are a lot easier to accomplish in the context of fiscal surpluses, to lessen the extent to which it is an exercise in robbing Peter to pay Paul.

I regard the Cullen years as a horrific wasted opportunity to reform the tax system. The massive surpluses allowed options that just do not exist anymore.

But there are some good signs. Not a lot of money, but it is about the culture. The Dom Post reports:

Wellington Hospital chiefs will axe percolated coffee for staff from next month to save $190,000 a year.

Excellent.

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26 Responses to “Fallow on Government Spending”

  1. expat (4,048 comments) says:

    190 a year is 50 bucks a day, hardly a fricking fortune however as you say its a start in the change process.

    gummint needs to cut the fat labour has built into the system.

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  2. KiwiGreg (3,169 comments) says:

    Closer to $520 a day but w/e.

    I wouldnt like to work in an environment without coffee.

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  3. Redbaiter (13,197 comments) says:

    Shame really. Doctors and nurses work hard, and should be able to be rewarded with such simple pleasures as percolated coffee.

    Because this country is indoctrinated to believe that state run medical care is the only workable health solution, they are denied it.

    Socialists have so much to answer for.

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  4. Adolf Fiinkensein (2,787 comments) says:

    In 1982, TNT in Australia axed free morning and afternoon tea biscuits for staff. In those days the saving was over $100k.

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  5. Brian Smaller (3,981 comments) says:

    Where I work in a private sector organisation the precolated coffee has been cut as well. Just nescafe, choysa and milo now. They do have to be careful though because the IT industry is run on caffeine.

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  6. expat (4,048 comments) says:

    oops, typo, you are correct 500.

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  7. petal (704 comments) says:

    >>> Wellington Hospital chiefs will axe percolated coffee for staff from next month to save $190,000 a year.

    DPF: Excellent.

    Oh come on now. Those sort of cost cutting measurements are STUPID. An army marches on its stomach, and an office army marches on its caffeine. This will drop productivity by MORE than $190,000 a year.

    (Disclosure: I don’t drink coffee)

    [DPF: They still get instant coffee]

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  8. KiwiGreg (3,169 comments) says:

    @ petal I am assuming (don’t know why) that they have simply axed the “free” coffee – staff can still get it by paying for it.

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  9. expat (4,048 comments) says:

    i.e. put the ‘coffee’ machines on pay per vend.

    Wonder if the coffee vend machine company owners are associated parties to Wellington health board members.

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  10. Bryan Spondre aka The Link Whore (225 comments) says:

    Bloody hell $190,000 pa on plunger coffee ? That is outrageous. We pay for our own coffee at interest.co.nz – personally I drink espresso at dellows.co.nz and am happy to pay for it myself. If these public servants want better coffee they need to support privatisation and elimination of all the politically correct wastage I am sure occurrs in the health system to satisfy moronic adherence to treaty principles.

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  11. JustRight (31 comments) says:

    I suggest that saving $190K while commendable, is a distraction from where the main focus should be. Why on earth does a country of 4 million odd people have 22 (I may be slightly out in my count) District Health Boards? With 22 CEO, CFO, Boards, HR Mgers etc. This is all appears to be in the name of ‘local democracy’ . What about the headcount in Ministry of Health?

    It is my view that the focus needs to be on costs that due to the chosen structure rather than nit picking at the periphery issues. $190K is a pittance – delay another upgrade of Ministry of Health furniture instead and save a cool couple of million. Further, remove an entire floor of people and see if it makes any difference!

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  12. gd (2,286 comments) says:

    JustRight You have hit the nail on the head We are hopelessly over administrated A country of 4 million souls does not need the numbers of central and local government employees to run it.

    In every area we have massive waste on top level down to middle level management and administrators whilst in some sectors like health a shortage of front line troops.

    I bet any good operations person without political interferance could cut 25% out the health sector management and admin costs and transfer that costs to better pay and conditions and to attract more frontline people.

    In other areas the saving could be used to cut taxes.

    Problem is there is no will capacity or capability by this or anyother NZ government because they are too frightened of the minority pressure groups who hold them to ransom

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  13. JustRight (31 comments) says:

    I know a Surgeon. We were discussing health sector etc and he was telling me how he & his colleagues meet each week over lunch to discuss cases, issues, problems & solutions. He has the authority to prescribe drugs that cost over $40K per year with little or no oversight. But, he had just received an edict that they were only allowed to spend up to $3.50 each on lunch.

    This is but a small example of focusing on the wrong stuff. The frontline people often bear the brunt of this lack of courage.

    I am ever hopeful that we are going to see some serious headcount reductions in the core administrative bureaucracy. The Left will of course paint this as cutting services, but I say this is bollocks.

    Further, it needs to be pointed out in no uncertain terms that the social dislocation caused by the inevitable reductions in headcount was created by Labour in the first place.

    It was under their watch that so many were employed unproductively.

    It was under their watch that so many Government departments outdid eachother to get into A grade office space in Wellington which will have to be re-leased (without much success I would think)

    It was under their watch that Public sector salaries went from behind the private sector to leading the private sector by 22%

    But, the undoing of all this lunacy is left to someone else. Meanwhile they can harp on about service cuts yadda yadda.

    One of my relatives is a raving lefty. He/She works for a Government Department and even he/she says ‘I can’t believe the wastage’ That says it all.

    I believe we could remove 2/3 of the Wellington bureaucracy and not notice a jot of difference. In fact, I surmise that services would improve as there would not be so much time spent pandering to ‘head office’ and fighting off insane ideas hatched by people who are trying to keep themselves busy

    10000 central bureaucracy is truckloads for a country the size of ours. I would be happier at 5000 though!

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  14. backster (2,067 comments) says:

    Yet we are spending $80,000,000 on office accommodation for five Supreme Court Judges, and the same level of extravagance to renovate Gvt.House. It wouldn’t surprise me if the coffee bill at each of those establishments exceeded the savings disclosed in this article.

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  15. side show bob (3,660 comments) says:

    WHAT !!!!!!!!!!!!!!!!!, no percolated coffee, it’s just not cricket. I was feeding out and the tall back host was talking about NZ lifting it’s productivity, give me a fucking break. As one of the many thousands of Kiwis who work everyday I’m tied of been told we have to lift our productivity, fuck them!!!!!!!!!!!. I’m tied and I bet hundred of thousands of others are tied of carrying the excess fat that is the public service. Quite frankly I couldn’t I couldn’t give a flying fuck about the PS, they have become parasites of the highest order and no amount of worm drench will kill these bastards off. I firmly believe they won’t be happy till the host is nothing more then a pile of bleached bones.

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  16. Repton (769 comments) says:

    I don’t understand this comment:

    I regard the Cullen years as a horrific wasted opportunity to reform the tax system. The massive surpluses allowed options that just do not exist anymore.

    Surely if reforming the tax system is unaffordable now, then it would _still_ be unaffordable in 2009 even if the reform had taken place in 2005 (e.g.)?

    If tax reform would improve the economy then surely we should be doing it now? If it won’t help now, then why would it have been a good idea five years ago?

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  17. gd (2,286 comments) says:

    Regarding administrative waste A little trick I learnt many years ago.

    You follow the paper(electronic) trail and see where it leads. If as in many cases its an internal loop then you look to see what if any value it adds to the organisation and the worst effect of stopping the process.

    In many cases the only effect will be the reduced work loads of those in the process loop who are creating work for the next stage in the loop.

    As Ive said many times before it aint rocket science All it needs is a pair of fresh eyes with an inquistive instinct and the ability to ask the 3rd question and not take No or ‘It cant be done” as the answer.

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  18. gd (2,286 comments) says:

    SSB Amen to that I have said it before The next Wanker who bangs on to me about increasing my productivity and is in arms reach will get my whole fist down their throats.

    Its more meaningless pathetic garbage. Like the prats who tell me battered and dead babies are ‘Societies” fault and try and put the guilt trip on me.

    If Im going to be responsible for the outcome then I demand authority to act to prevent the outcome.

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  19. kaya (1,360 comments) says:

    gd – Nailed it. Apart from the financial costs, the excessve processes, systems and paperwork drag the real work down. Effective is a word that most bureaunazis can’t spell, let alone know the meaning of. Everything takes longer and is more expensive but I suppose pushing paper around an organisation can give the appearance of working.

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  20. whalehunter (467 comments) says:

    its funny how few rationally defend the public sector…. and was that $40b a year they spend.

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  21. whalehunter (467 comments) says:

    wiki says:

    ‘New Zealanders have a high level of life satisfaction as measured by international surveys; this is despite lower GDP per-head levels than many other OECD countries.’

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  22. whalehunter (467 comments) says:

    John Whitehead says:

    ‘Central and local government spending is equivalent to about 45% of GDP.’

    ‘There are 247,500 state sector employees (FTEs) and the total public sector wage bill is over $18 billion.’

    It just goes on and on….

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  23. Johnboy (14,857 comments) says:

    ‘New Zealanders have a high level of life satisfaction as measured by international surveys; this is despite lower GDP per-head levels than many other OECD countries.’

    You tend to feel satisfied when even though your GDP/head is low you can still get a benefit to cover the costs of your drug habit and you can get a lot extra if you can do the haka and claim to be indiginous cus.

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  24. OECD rank 22 kiwi (2,810 comments) says:

    Repton says on July 23rd, 2009 at 1:48 pm:

    If tax reform would improve the economy then surely we should be doing it now? If it won’t help now, then why would it have been a good idea five years ago?

    Because it is now David’s mates in National that feel the heat when the Sheeple complain about “their” taxpayer funded privileges being cut.

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  25. V (668 comments) says:

    We could always go the way of California, spend like a drunken sailor and then issue IOUs!?

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  26. jcuknz (704 comments) says:

    They talk of greater productivity but when instant coffee is but a fraction of the effectiveness of perculated coffee or other ways of making ‘real’ coffee surely instant coffee should be banned from the workforce.

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