Source: ACT Party
The Haps
Yet again half of the Government’s quarterly plan comes from ACT. If you gave ACT your party vote you are getting great value. If not, there is always next time.
Charter schools are back, in law. The legislation to make charters legal passed last week, while the Government has provided a serious school attendance strategy with actions and obligations for schools, parents, students and government departments.
We have received widespread praise of David Seymour’s performance taming Jack Tame on Q+A on Sunday.
The Mystery of Capital
This week Free Press dives into a neglected area that’s at the centre of the country’s political problems. It’s not the money raised and spent this year, but managing capital that’s the problem.
Most of the political attention on Government finance may be misplaced, being on annual expenses instead of long-term capital. Dunedin Hospital, military planes and ships, new ferries, new medical schools, roads, classrooms and water treatment plants for new subdivisions… They’re all capital investments that the Government could make, but it’s already got nearly $180 billion in debt.
Operating expenditure gets the attention, because the Public Finance Act was set up to stop governments running deficits. The headline is nearly always whether the government takes in more than it pays out this year, or OBEGAL. There’s some sense in that, but look what’s been happening with capital.
Next year government debt is forecast to hit $178 billion, and it will pay over $8 billion in interest. Ratings agencies can raise a government’s interest rates at the stroke of a pen if they downgrade its credit rating, and some have been murmuring about New Zealand’s rating in the last year.
Every year the government taxes less than it spends, the debt grows. In fact, even if it runs a surplus the debt can still grow if the surplus doesn’t cover the interest. Debt is scheduled to keep growing until 2031, peaking at $215 billion.
Obviously it would be good to pay it down faster, but there’s no scenario where the government doesn’t have major debt for the foreseeable future. So, how hard is the debt working for the taxpayers who are staking it?
It’s a good time for the government to do a capital review. For each thing that it owns, a taxpayer is entitled to ask, what does this do? Also, does it need to be done? Could or would someone else do it if the government didn’t do it? Is this asset helping economic growth, so the government can earn more in the future?
Once you start asking these questions, you get to some interesting places. Why does the Government own three competing power companies, a TV station, and a radio station? They’re all things that someone else could do, and many others actually do. They’re not making great returns for the Government, so it’s not really obvious at all.
The Government owns about 60,000 houses. Is that a good use of capital? If they’re worth half a million dollars each, that’s $30 billion. Imagine spending $30 billion on infrastructure that nobody else will build, opening up land so more homes could be built.
What about schools? Oh no, you say. Free Press has gone completely nuts this time. But wait, the last Government effectively privatised many school properties by giving them to iwi as Treaty settlements and leasing them back. It was privatisation that didn’t actually get any cash back.
The same goes for new spending. There is a perfectly good ferry business operating on Cook Strait, without a cent of taxpayer money. Since that proves others can do it, does the Government need to lose even more money trying to operate its own?
New Zealand spends 0.9 per cent of GDP on defence, our only ally spends 2.0, and they’re increasing it. Is that sustainable? Can anyone but the government run a Defence Force? Defence is one area where the government needs more capital.
We could go on, but you get the picture. The Government holds massive debt and yet it’s not really obvious what we’re getting for it. It’s certainly not obvious what we got for the $100 billion in extra debt Grant Robertson took on.
Sooner or later the Government will have to have an honest conversation about its debt, and do a capital review. If it can’t be paid off any time soon, can we at least make sure the government only owns things that do what needs to be done, that nobody else could do, and ideally that deliver a return for future generations?
