National’s claim to have halved the deficit in the last financial year is only true if the reduction in Earthquake expenditure is counted.
The most significant reason for a smaller deficit than last financial year is that there was a significant amount of unexpected spending in the previous year due to the Canterbury earthquakes. The non-earthquake related deficit has only reduced to $7.3 billion from $9.3 billion.
Earthquake spending is understandable, but the remaining deficit is something we should all be gravely concerned about. It is loading today’s costs onto tomorrow’s taxpayers, because all debts must be repaid by somebody someday.
Indeed, New Zealand has a long term problem with fiscal sustainability that will be made worse by demographic changes over the coming decades.
This month the Treasury is expected to release its third triennial long term forecast.
The first, in 2006, forecast a Greek style government debt equal to 106 per cent of GDP in forty years. The second, in 2009, put the same figure at a disastrous 224 per cent of GDP.
These long term trends are the reason we need to stop overspending now.
The remedies are actually simple. National should scrap the Labour policies that they happily rubbished when they were in Opposition.
The policy of funding 20 hours of Early Childhood Education for free was a gift to people who mostly already enrolled their children anyway. It has cost an extra billion dollars while barely raising ECE participation. Sadly it is those children who will have to pay for it in higher taxes later on.
Refusing to raise the pension age is both economic lunacy and political obstinacy. Raising the age would eventually free up billions, but like all fiscal challenges, it would be best tackled early.
Interest free student loans may well be the most politically cynical policy we have. They are a fillip to graduates of tertiary education. These are the people who have had the most opportunity to benefit from state education. They should have the greatest ability to earn income, and yet there is a Government policy designed to give them more money.
Working for families, in its later expanded form, is a massive program of middle class welfare that will again be paid for by the younger members of the family as the Government piles on debt.
ACT believes that the deficit won’t go away easily, and New Zealand needs to consider the future taxpayers who can’t yet speak for themselves alongside the wants of current voters.
The Government's latest announcement shows us just how persistent a deficit can be.
National must move more boldly towards reducing the deficit and then lowering taxes.