Matthew Hooton: Projecting our fiscal position in 40 years? Good luck
If you don’t want a big tax hike, you better check out Treasury’s website this weekend.
In 2004, then Finance Minister Michael Cullen legislated to require Treasury to prepare, at least every four years, a statement on New Zealand’s long-term fiscal position, looking ahead at least 40 years.
The 2021 edition, through to 2061, is available for consultation until the end of this month. Businesspeople, economists, climate scientists, medical experts and anyone else keen to peer into the future is invited to add their two cents’ worth.
It’s easy to ridicule such exercises. Go back to 1921 and ask then Treasury boss George Campbell about 1961. Does he forecast the irrational exuberance and sharemarket crash of the 1920s, the Great Depression and Second World War, the advent of nuclear weapons making war among great powers unthinkable, the economic gains of the 1950s and the fiscal catastrophe of the baby boom?
Go back 40 years to 1981 — just in time to cheer or protest Poverty Bay playing the Springboks in Gisborne — and stop by Wellington to chat with Treasury boss Bernie Galvin. Does he tell you about his worries that our free-trade agreement will make New Zealand economically dependent on China, and how the internet and smartphones will affect productivity?
Alas, the poor 2006 Treasury boffins didn’t know about the Global Financial Crisis, which meant Cullen’s actual legacy to Bill English was a decade of forecast deficits.
By Treasury’s 2009 report, English was issuing $250 million of new debt each week, the annual deficit was already 3.3 per cent of GDP and net debt was picked to hit 36 per cent of GDP in 2017.
Unfortunately, Treasury didn’t know about the Christchurch earthquakes, which made everything even worse in its 2013 projections. Look forward to its 2016 report, and Treasury failed utterly to warn us about Covid-19.
The current iteration for public discussion has net debt hitting nearly 50 per cent of GDP in 2024. That’s nearly half as bad as the 2006 report picked for 2050, after the Baby Boomers would have enjoyed their last big spend-up on health and superannuation before passing on.
Still, the most depressing part of reviewing all four of Treasury’s efforts is what hasn’t changed.
Back in 2006, Treasury thought ageing Baby Boomers and other factors would double health spending to roughly 12.5 per cent of GDP by 2050. With no policy changes, superannuation costs would also roughly double to around 8.8 per cent of GDP.
Those projections improved a bit in 2009, mainly because of higher forecast GDP growth, but have basically sat around 10 per cent for health and 8 per cent for superannuation ever since. That suggests a generation of politicians has known about the problem but has done nothing about it.
Lest we accuse politicians alone ofturning a blind eye, most of what the media reports as political news is also irrelevant.
It may be appalling how massively the Wellington bureaucracy has grown under Helen Clark, John Key and Jacinda Ardern. But in the scheme of things, the cost of its mostly pointless activity is immaterial.
The big-screen TVand hair straighteners our budding Woodwards and Bernsteins uncovered in 2015 in Steven Joyce’s new Ministry of Business, Innovation and Employment don’t matter at all, except as they indicate culture.
Even massive one-off spends such as English loosening the purse strings after the Christchurch earthquakes and Robertson shovelling newly created cash out the door last year don’t make much long-term difference.
Similarly, what New Zealand does domestically about climate change has no real long-term effect on the economy or climate, one way or the other.
The external factors that matter are mainly determined by great powers, including what they do to avoid climate change, protectionism and war, and the inventions of major global innovators, perhaps including Kiwis, although nationality is irrelevant.
The only factors that both make a difference and are under our control are how quickly and effectively we adopt whatever new technologies come along to improve productivity; whether or not we think of ways to obtain more value from international customers, consumers and tourists at lower economic and environmental cost; how we can reduce the percentage of people in our underclass and the costs they impose on everyone else; what taxes we are prepared to pay; and what services, transfer payments and other indulgences we demand from the state.
To its credit, Treasury avoids positing miraculous gains in economic or educational productivity, given New Zealand’s dismal record on both. Instead, it models three basic paths to avoid slipping down the long-term fiscal hole it has been warning us about since the Baby Boomers decided in the 1970s and 1980s to limit the size of their families and thus the number of future taxpayers and dutiful mokopuna to support them in retirement.
Treasury’s first model cuts transfer payments like superannuation, although measures like raising the age of entitlement to 67 don’t do all that much to improve the outlook.
For a bigger fiscal gain, Treasury models freezing the percentage of GDP spent by the state on services like health. Or it says we could raise taxes. None seems very palatable — or saleable.
In Opposition, Robertson talked a lot about the future of work, suggesting he might be up for bold change.
The relationship between our tolerance for tax and our demand for transfers, services and indulgences could usefully be discussed. A group as diverse as Milton Friedman in 1962, Roger Douglas in 1987, Lockwood Smith in the 2000s and the Greens in the 2010s has mused about options resembling a Universal Basic Income.
Ardern has the once-in-a-generation communications skills to lead such discussions. She won’t of course. Such honesty might limit her to three terms instead of four or five.
Most likely, we’ll just muddle along, on a slow but steady decline. Ultimately, that’s our fault as the voters, parents and grandparents of the future. Still, there’s no harm in letting Treasury know if you have any bright ideas.
– Matthew Hooton is an Auckland-based public relations consultant.
Source: Read Full Article