An Exercise In Basic Accountancy.

Hoopla And Razzamatazz: Putting the country into debt allows a Minister of Finance to keep the lights on and the ATMs working without raising taxes. That option may become unavoidable at some future time, for some future government, but that is not the present government’s concern – not in the context of a three year electoral cycle. The politician’s motto is simple: “Always put off until tomorrow what is likely to cost you votes today.”

WHY HAS MAKING such a ridiculously big deal out of the whole Budget exercise persisted? The very notion that the government of the day possesses the foresight and skill to successfully diagnose and treat the nation’s economic ills in ways that have not been tried a hundred times before is fanciful. The smart move would be to treat the entire process as an exercise in basic accountancy. Because that’s all it is.

In essence, the budgetary process is about whether or not present state expenditures should persist (with appropriate adjustments for inflation) or be discontinued. Since most state expenditure is committed to activities that cannot be discontinued without throwing society into chaos, practically all of the Minister of Finance’s decisions are made for him. The sick must continue to be treated. The young must continue to be taught. The poor must continue to be housed and fed. The elderly must continue to be supported in their old age. Just attending to these “Musts” consumes practically all of the State’s annual revenue.

Of course a wise Minister of Finance will also keep a weather-eye on the condition of the global economy. Not because he can do anything about it, but because the impact of exogenous economic events – especially negative events – cannot help but affect the condition of the domestic economy. A reduction in the amount of money people spend and/or invest has consequences for the health of the nation’s businesses, the number of its citizens in work, and, most importantly, the quantum of revenue collected by the state.

In a rational society, any shortfall in state revenue would be made up by a corresponding increase in taxation. Unfortunately, democratic states are seldom governed rationally. Governments elected by the people are reluctant to court the wrath of their electors by increasing their taxes, preferring instead to allow the nation’s cultural and physical infrastructure to decay. Or, if the deferral of crucial maintenance fails to produce the savings necessary to keep the “Musts” operational, borrowing to make good the shortfall.

Government borrowing poses all manner of potential problems for the nation, but not immediately. In a democracy, this delay between the act and its consequences is precious. Putting the country into debt allows a Minister of Finance to keep the lights on and the ATMs working without raising taxes. That option may become unavoidable at some future time, for some future government, but that is not the present government’s concern – not in the context of a three year electoral cycle. The politician’s motto is simple: “Always put off until tomorrow what is likely to cost you votes today.”

The problem with days of reckoning is that they always come. It was Rob Muldoon who found himself without a chair to sit on when the music stopped playing in 1984. When the game resumed, David Lange, and his Finance Minister, Roger Douglas, found themselves without fiscal options. Something dramatic had to happen to the way New Zealand was run, or the lights would indeed go out and the ATMs stop working. (In 1984 they very nearly did!)

As we all know, something dramatic did happen – “Rogernomics”.

Prior to Rogernomics, Budgets had been newsworthy largely because they were the occasion for rises in government taxes on petrol, tobacco and alcohol. Less frequently they made news on account of minor adjustments to Income Tax. Roger Douglas put paid to all of that.

After 1984, Budgets became part of the grand theatre of economic reform. Not even the “Musts” escaped the attention of the reformers. The National Party Finance Minister, Ruth Richardson, confronted with another day of fiscal reckoning in 1991, produced what she called “The Mother of All Budgets”. (A reference to Iraq dictator Saddam Hussein’s promised “Mother of All Battles” during the First Gulf War, which should have warned New Zealanders what Richardson had in store!) It was TMOAB that slashed the incomes of beneficiaries by 25 percent – impoverishing thousands. For some Kiwis, Budgets were now events to be feared.

In spite of the best efforts of the political marketing experts, there has not been a Budget to match Ruth Richardson’s TMOAB for more than 30 years. Yes, there have been years in which Bill English (another National Finance Minister) felt obliged to cut back sharply on what he memorably described as the “Nice To Haves”. (Government projects that made life easier, happier, more fulfilling.) But the “Musts” have limped on from one Jerry-built Budget to the next. But, not for much longer. Those dark clouds gathering on the horizon speak gloomily of another day of reckoning that is fast approaching.

It will not be an ordinary day. Crowded into its 24 hours will be climate change, global financial fragility, the weakening and breaking of supply chains, rising geopolitical tensions, rampant inflation, and the ongoing effects of a global pandemic. To keep the lights on and the ATMs working in the face of these challenges, governments all around the world have been forced to borrow and spend like there was no tomorrow. (Which, with the hooves of the Four Horsemen of the Apocalypse thundering across the planet, may not be an unreasonable prediction!)

The current Finance Minister, Grant Robertson, has about as much chance of holding these grim arrivals at the border as King Canute had of keeping the incoming tide at bay. The budget Robertson delivered today, like most budgets, is a holding operation. If he’s lucky, he will get the chance to borrow and spend all over again in 2023, in a final bid to retain control of the Treasury Benches.

If, however, Robertson is unlucky and/or unsuccessful, then he is unlikely to be too distraught. Indeed, he may feel extremely relieved that he does not have to write the 2024 Budget. And if his assumed successor, Nicola Willis, has a lick of sense she will persuade her boss, Christopher Luxon, to hand-off the job of dealing with the Mother of All Days of Reckoning to Act’s David Seymour. After all, he’s the man with the machete.

Rather than search for a Budget title to top Ruth Richardson’s, Seymour should dispense altogether with the hoopla and razzamatazz surrounding the Budget performance. Since the document he hopes to present will be nothing more – nor less – than an exercise in basic accountancy, that’s the description he should use.

That the phrase ‘an exercise in basic accountancy’ will forever after strike fear into the hearts of New Zealanders is, sadly, as unavoidable as death and taxes.

This essay was originally posted on The Daily Blog of Friday, 20 May 2022.