article commissioned by NZ Herald,
Herald version published as: Where's all the help for low-income households?

Budget 2000: a Cautious Revival of the Social Wage

Keith Rankin, 16 June 2000

The 2000 budget represents modern social democratic orthodoxy; a mix of classical macroeconomics (think Ruth Richardson's Fiscal Responsibility Act) and a return to a state-controlled social wage.

This emphasis on balancing the budget contrasts markedly with the willingness of previous Labour finance ministers to follow the Keynesian formula by spending to create full employment. Even Roger Douglas, in 1984-88, was a big spender.

The Labour-led government plans to boost the national savings rate. Like its 1972-75 predecessor[], it will do the savings itself by running budget surpluses across the economic cycle.

The government's fiscal strategy has been facilitated by Don Brash's unintentional triggering of a fall in the NZ dollar. Thanks to that fall, the recovery which began last year is now back on track, and with a markedly provincial emphasis. The strategy of balanced budget state-led growth will I expect prove sustainable across two terms of centre-left government.

While not a visionary budget, there is an underlying theme marked by words like "participation" and "inclusiveness". The imagery is that New Zealand now has an economy oriented exclusively to the interests of the established businesses community. True to the Labour roots of both coalition partners, the budget's concept of inclusiveness is "labourist", based on the presumption that our participation in society is dominated by our formal participation in paid work.

There is little recognition of people who contribute or would like to contribute through unpaid work, whether work in the home, in the voluntary sector, or through combinations of unpaid creativity and paid casual work.

Through the creation of Industry New Zealand, and a system of grants for new companies in preference to tax breaks to established companies, there is an intent to facilitate the emergence of New Zealand as a small-business led knowledge economy. Yet this policy sits uneasily with recently introduced legislation specifically targeted to prevent Unitec - a tertiary education institute which was quick to take initiatives to support knowledge economy entrepreneurship - from gaining university status.

The budget targets employees, small businesses, Maori. "Closing the Gaps" focuses mainly on Maori. In doing so, it suggests that the problems of low income Maori are different to those of low-income pakeha. While it is true that poverty disproportionately affects Maori, more people in poverty are not Maori than are Maori. If they are not helped, then new gaps will open. There is no general attack on poverty; no single programme that will lift Maori, Pakeha, Pacific Polynesians, and the many other ethnic groups out of the poverty traps that they face.

One specific programme - income related state rentals - concerns me. While it will help many Maori and Pacific Islanders who face discrimination in the private rental market, it fails to address the fact that low incomes is only one reason why poverty exists. Other reasons include massive private debts and cultural or extended-family obligations. Income related rentals are a part of the poverty trap that makes it virtually impossible for poor New Zealanders to get out of debt by the most natural and most legal of means, namely by raising one's income. It is often easier to escape immediate poverty by going further into debt or by breaking the law. An alternative housing policy would be for Housing New Zealand to charge rents at say 20% below the market rate, while offering only limited term leases.

The thrust of the budgets of the past decade was to give the lion's share of the gains of economic growth as tax cuts to high earners. In doing so, the contribution to growth of low-income recipients and non-earners was never acknowledged. Rather than redirecting the gains of growth as benefits or tax credits to the cash-starved, the growth surpluses will, in the 2000s, be paid in kind, through targeted government-funded services.

There are several ways in which a visionary 'new left' programme could have directed much of the gains from recent growth into the pockets of those who most need it.

One is a negative income tax programme that would effectively extend the present family-plus tax credits to the whole population. The IRD would become a one-stop shop for taxes and benefits, rendering WINZ redundant.

A second way of helping low income New Zealanders to help themselves - and help the country in the process - would be to distribute the profits of State Owned Enterprises (SOEs) and Local Authority Trading Enterprises (LATEs) to the public instead of placing them in the government's coffers.

The budget is too cautious. We need to create wealth and jobs now, through a government-led expansion of aggregate demand, not only to reduce unemployment and underemployment, but also to attract our young expatriate graduates back to New Zealand. The most important thing missing from the budget is a plan to relieve our overburdened low income households.



© 2000 Keith Rankin

Rankin File | 2000 titles