New Zealand’s spending binge

Most of New Zealand’s general election campaign is being dominated by squabbling over the Crown selling a minority stake in four state-owned assets while ignoring serious issues such as the massive and unsustainable increase in government spending in the past decade.

From 2000 to 2010, government went on an unprecedented spending binge. Core Crown expenditure doubled to $70.5 billion, a real increase of 57%. Government’s core spending leapt from 29% of the economy to 35%, while its overall share of the economy jumped to 45% (actually 49.9% of GDP this year because of the Christchurch earthquake).

A lot of this extra cash went into substantially increasing the size of the big three: health, education and welfare/social security. Other costly additions included Kiwisaver, Working for Families, and a larger public sector.

But what did taxpayers get for all this massive spending?

Not much, particularly in the key indicators of health, education and welfare/social security. Overall benefit rolls have not changed greatly except for a substantial transfer of people from short- to long-term benefit rolls. Educational achievement has remained steady, and while elective surgery has improved in the past couple of years, hospital productivity remains stubbornly low and health indicators have not improved. Moreover, as a proxy for the overall health of society – the very thing that social spending is supposed to improve – crime rates have basically plateaued.

For such a massive increase, New Zealand is not a happier, wealthier or healthier place.

The Key government is facing the same problem as the Cameron government in Britain. Both followed Labour governments that had spent the proceeds of prosperity, and are facing hefty deficits into a future of far less certainty.

However, in Britain, as in New Zealand, neither government seems prepared to grasp the nettle and admit to the substantial problems, some of which have been created by massive and irresponsible increases in government spending.

It would be good to see that discussed on the campaign trail.

Luke Malpass is a Policy Analyst with the New Zealand policy unit at The Centre for Independent Studies. His new report, The Decade-long Binge: How Government Squandered Ten Years of Economic Prosperity, was released yesterday.