18 May 2006

Budget 2006

Those of you doing 144723 can no doubt anticipate more detailed analysis of the Budget than is required for 721. Nonetheless, the Minister of Finance's Budget Speech normally has some interesting clues about prevailing policy ideas, and these can be linked to broader models of political economy. So, the Budget contains some fairly predictable measures to boost investment in transport infrastructure, health, education and research. Cullen's statement that 'the most important contributor to economic growth in a modern economy is human capital' helps to justify extra spending in education, and is also a common theme in this 'third way' era.
This government's savings programme (mainly, but not only, the NZ Super Fund) is making substantial inroads into the public debt position. So, while Cullen is having to remind us that NZ is at the bottom of the economic cycle, he boasts that 'NZ is in a far stronger position to cope with the fiscal consequences of the demographic transformation which will occur over the next 30 to 40 years than almost any other developed country. This will increasingly become a competitive advantage for us...'
But, also intriguing is Cullen's statement that his government 'does not subscribe to the theory that economic transformation consists of a period of actual intense pain followed by often hypothetical gains', noting also that the pains and gains are not normally evenly distributed through the population. Here, Cullen is rejecting a form of fiscal austerity that would have been applied by strict neo-liberal dogma.
So, Cullen argues that 'slashing government expenditure, thus making the slowdown worse', while at the bottom of the economic cycle, is not the way he intends to go. He uses the phrase 'automatic stabilisers' to refer to the way that government spending, if sustained - and not slashed - during a slow phase of the cycle should help smooth the long-run growth path. It helps us understand why he is able to be confidently announcing new spending and investment while facing cash deficits ahead.
All this sounds rather Keynesian to me - or am I just thinking too hard?
For all the Budget details, click on the Treasury link to the right...

4 Comments:

At 10:03 AM, Anonymous Anonymous said...

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At 10:50 AM, Anonymous Anonymous said...

Coupla comments - yes some of what you report Cullen as saying sounds rather 1st labour govt, and also a swipe at Rogernomics regarding the pains of transformation. Listening to him on a radio interview, it seems that he has redefined what 'transformation' means - in his terms it seems to be an evolutionary process rather than climbing off a donkey and getting on a horse.
I was hoping to avoid getting too much into the budget, and more into my essay. It must start soon!
Mark V

 
At 10:14 PM, Anonymous Anonymous said...

Not related to your item but just recent news about the performance and future of the country's only privately operated prison - seemed that some of the background to the debate was public choice theory - here was a live example of private enterprise undertaking an activity which had traditionally been carried on by the state. The government's reasons for discontinuing the the practice seemed to be nothing more substantial than: we don't like it. That would be more understandable if they were espousing themselves to be social democrats, but they overall seem to fit better in the mould of 3rd way
cheers
Mark V

 
At 2:47 PM, Anonymous Grant said...

Mark
You're right that the issue is about public choice theory, but Labour's opposition to private prisons is about more than just 'not liking them'. There is a belief that such core coercive powers of the state must be the sole province of the state, and not let out to private companies for profit. You can say this is ideological, but so is the case for private-sector involvement. The embarrassment for the govt is that the private remand prison got such good reviews. The challenge then is to prove that public managers can do an equally good job. It was the same problem with ACC...
Grant

 

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