A spending cap
April 20th, 2010 at 6:41 am by David FarrarThe Herald reports:
Prime Minister John Key has swiftly shot down speculation that next month’s Budget would include an announcement on some form of legislated cap on Government spending.
This is a pity. I am definitely fan of a cap on spending as a percentage of GDP.
“We have our own self-imposed cap,” he said referring to the $1.1 billion limit on new spending announced last year.
And that is a useful discipline, but I think there is a difference between a cap on new spending and a target for how large the state’s portion of the economy should be.
The Act Party favours a legislated cap which would freeze government spending in real per capita terms, that is, only allow spending to increase in line with inflation and population growth unless over-ridden by a public referendum.
Again I think this is a worthwhile policy. Only allowing inflation and population adjustments might be a bit too restrictive, but one could set it as a maximum increase in real per capita terms of 1% a year for example.
The 2025 taskforce chaired by Don Brash recommended legislation requiring the Government to set a medium-term target for its operating spending either in real per capita terms or as a share of GDP.
And such a requirement would force transparency from parties on their spending plans. I want to have parties tell us their desired share of GDP for the state. National might say 30%, Labour 35% and ACT 25%, and one can make an informed choice about which policy you prefer.
Key said he did not support measures limiting something to a specified share of GDP.
Many governments had responded to the global financial crisis over the past 12 to 18 months by increasing their spending as a percentage of the economy. “If they are talking about something different, we could look at that.”
The PM’s concern seems to be that such a legislated cap would remove the ability of a Government to respond to a recession. But I think one can deal with that issue by having the cap as a medium term target, with the legislative requirement being to report progress against it – not to be illegal to ever exceed it.
Key does not seem to have ruled out a cap, if it leaves the Government with some flexibility. I think that is achievable and would encourage National to work towards that.
Related posts:
- NZ Herald on Spending Cap
- Government Expenditure
- ACT tax policy
- Prosperity creates spending, not vice-versa
April 20th, 2010 at 7:20 am
If that is the PM’s problem, he shouldn’t have agreed to this in the National-ACT confidence and supply agreement:
Support, within six months, the referral of ACT’s Taxpayer Rights Bill to the Finance and Expenditure Committee of Parliament as a government measure with the aim of passing into law a cap on the growth of core Crown expenses.
Stupid promise though it may have been, if it wasn’t intended, it shouldn’t have been made. If he intended a half-hearted non-committal endorsement, it should have made in terms of the promise over three-strikes:
National agrees to introduce the ACT Three Strikes Bill as a part of this package of measures, to receive submissions and consideration in the select committee.
National further agrees to give the ACT bill a fair hearing in the committee based on the evidence and give due weight to the submissions received.
No “with the aim of passing a three strikes into law” promised there.
Vote:April 20th, 2010 at 7:32 am
And a future govt would feel bound not to immediately repeal legislation restricting what it can do, proposed by a party with 2% support and passed by a simple majority in Parliament – why, exactly?
Just more wasting everyone’s time passing laws for the sake of it (and more importantly as far as the govt’s concerned, for the sake of placating a minor coalition partner). This is just the Families Commission in another form.
Vote:April 20th, 2010 at 7:33 am
What Milt said. Without a single document written constitution in NZ, there’s not much point to the exercise.
Vote:April 20th, 2010 at 8:44 am
I don’t like the idea of legal spending caps. I don’t think they should be necessary, governments should get into the habit of acting with fiscal prudence. And legal caps could be an impediment when an urgent boost in spending may be most needed, eg during a financial crisis.
Seems like Act want selective freedom and selective restrictions to suit their own agenda.
Vote:April 20th, 2010 at 10:00 am
Who needs a spending cap? We’re only borrowing $250 million a week, so instead of restricting government spending lets start mining our national parks instead.
Vote:April 21st, 2010 at 12:43 am
Has Key said no to any spending initiative yet?
Vote:April 21st, 2010 at 8:44 pm
Pete George, your dreaming. Government will never be prudent. When you got 60 billion in hand, what’s another 1 billion, right? And last year it was another billion. These last nine years the taxpayer had been dealt a blow because if there were spending caps, the national debt would be down, we could have had the oportunity to have great tax cuts and more spending money. With all the government spending Cullen did, it raised interest rates and we were and still are bled by taxation. The government will never be able to be prudent. John Key is letting us down AGAIN. He should be helping the economy by lowering taxes, not increasing them the way he has been. Rodney only wants to see production start in this country. People are being layed off, remember?? Government won’t provide jobs, private industry provides the jobs. Bureaucracy only acts as a brake handle in the scheme of things.
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