Politics: The budget – balancing present and future

After the first Christchurch earthquake Bill English and John Key cut new spending for 2011-12 from $1.1 billion plus two percent to $700-$800 million. After the second earthquake they cut that to zero. This is not your usual election-year budget.
The election pitch in the budget will essentially be: you know the economy is in hole, you know earthquakes have made the hole lot deeper and so you know government (and household) finances have got tighter and you know financially sober cabinet is the safest way out of the hole.
Add this: for English austerity is here to stay. After he gets the budget back into surplus – by, he aims, 2015-16 – he wants to restore contributions to the Cullen Fund and then build buffer against shocks.
This is 10-year trajectory, give or take nasty or nice shocks.
That means fewer public and state servants. Even returning to the $1.1 billion plus two percent year formula in 2012 would push the rise in government spending below inflation, leaving less money in real terms for staff because public services are generally labour-intensive. But English began indicating last year that he would not go back to $1.1 billion.
In any case the 2011-12 zero is less than zero for most agencies. Baseline budgets are being cut to allow some additional spending for health and education because those two portfolios’ costs rise faster than inflation. (Transfer payments fluctuate with demand.)
This is forcing some hard choices on agencies’ chief executives: find back-office savings through IT improvements, sharing services and procurement, innovations, and maybe bulking up with another agency; find more efficient delivery mechanisms or contract out to the for-profit and not-for-profit sectors; reprioritise activities, delay some projects and drop the lowest-priority ones; and inevitably in most cases, cut staff numbers.
English says he is impressed with the ingenuity chief executives have shown, some more than others. He wants “more for less”. That is not widely likely, though he might get close to “same for less” for while. If innovation falls short, he will get less for less.
But English has history on his side. The younger generations expect fast access and customised services, including public services. The rising Asian nations, to which our economic and security future will increasingly be bound, will be unlikely, even as their middle classes expand, to boost public services to the North Atlantic countries’ levels with which we now benchmark ourselves.
Those influences are likely to combine to drive more flexible and smaller public services. English is unlikely to be in charge of the budget through the whole of the next 10 years but the historical drivers will be around.
That’s the how big and the how of government. But what about the what for? Ultimately, that is far more important and ultimately that is voters’ focus and their “what for” is better future.
Through the later months of 2010 Wayne Mapp and John Key hinted at more government resources for science and research as generators of innovation, which is the main component of productivity growth, which is the main component (unless there is big oil strike) in getting richer.
But in the first few months of this year the hints dried up.
In his opening speech to Parliament in February Key said it would be savings and investment budget. Savings and investment are keys to the melting of the huge country net foreign debt and to building new and more productive businesses. Key hinted that there might be money in the budget to boost them.
After the earthquake those hints were muted.
The “better future” test of the 2011 budget is whether Key and English make good their earlier hints. top manager looks ahead strategically, all the more so in tough times. The budget will show whether Key and English have that mettle. M

Colin James is New Zealand’s leading political commentator and NZ Management’s regular political columnist. [email protected]

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