Economic courage or political suicide
A good old fashioned Aussie uproar is underway, stemming from a report by Australia’s “National Commission of Audit.” This “razor gang” was appointed by the Government to identify where value for taxpayers money could be improved, wasteful spending slashed, duplication between local, state, and federal governments removed or the private and community sector engaged to do a better job.
The 64 recommendations (which the government can ignore) are aimed at securing a surplus in Australia by 2023-24 and include raising the pension age, scrapping family payments, and tightening child care, health care, education and unemployment eligibility. Australian Treasurer Joe Hockey wryly acknowledged that some of the recommended reforms were “courageous,” a term which doubles for “electoral suicide” in political circles.
Others see this as a political stunt—a manufactured crisis to make the likely spending cuts in the upcoming budget seem more palatable. Perhaps. But there is wisdom in looking to the future.
Last year in New Zealand, Treasury released their long-term fiscal statement called “Affording our Future.” Speaking at the launch of the report, Secretary Gabriel Makhlouf unequivocally stated that “there is no crisis” in New Zealand. Phew.
However, even our “rock star economy,” which is set for a surplus next year, needs on-going adjustment. Rock stars aren’t known for their strategic thinking, and sometimes, their rise to stardom is met with an equally spectacular fall.
If our economy falls, it will likely be due to demographic changes. Our ageing population means that healthcare costs as a percentage of GDP are projected to almost double in fifty years from 6.8% to 10.8%. NZ Super is in the same boat, projected to increase from 4.3% to 7.9%.
If our tax rates remain the same, government spending will rise from around a third to almost a half of GDP by 2060—in large part thanks to the snowballing repayments required to pay the interest on debt, forecast to cost more per year than education and welfare combined.
So, we may not have a crisis, yet. But if we continue shuffling along on this track, what began as a meandering stroll may end up on a precipice. If we don’t want to go to rehab, we must say no, no, no to the fiscal status quo. Prudent reforms are required, and the sooner they are implemented, the less extreme they will need to be and the more time there will be to implement them well.
More time to act is critical to avoid a repeat of the social upheaval in the eighties. Frenzied and furious reforms are as dangerous as frantic and slashing surgery. For the sake of our families and communities, we need to be just as careful with the body politic as with the body physical.
The budget is just around the corner; the election coming close behind. As parties unveil their policies, let’s view them through binoculars and think long-term. New Zealand can be much more than a one-hit-wonder, but we must vote with future generations in mind.