Budget will blow chance for change

11:00 am on 24 May 2017

Rod Oram*

With his first budget on Thursday, Finance Minister Steven Joyce will have two rare opportunities most of his counterparts overseas can only dream of - rising surpluses and increased government spending.

However, he will largely squander them by spending the money in remarkably conservative ways.

Finance Minister Steven Joyce at Printlink for the printing of the 2017 Budget.

Photo: RNZ / Rebekah Parsons-King

His plans will attempt to keep our 20th century style of economy going a bit longer. They won't significantly help Kiwi companies and workers respond more effectively to the very rapid early 21st century changes to the economy, environment and technology.

The only exception will be a mere $31m more for social investment.

This is the new approach to welfare issues pioneered by Prime Minister Bill English when he preceded Mr Joyce as Finance Minister - the concept is to use deep data analysis to find and support the most vulnerable people.

Then, hopefully, they will be better able to deal with life and work, and thus need less welfare support.

Such investment will radically change the way government spends its money on people, the Prime Minister says.

Yes - but very small budget sums for very small pilot projects will ensure the government will learn very slowly. Thus, people will continue to struggle and the benefits of a big reworking of government spending will be long delayed.

When it comes to investing in the economy, Mr Joyce has already announced the key elements of his first budget. The biggest sum is an extra $11bn of spending on infrastructure over the next four years.

In addition, the government has just announced its programme to build 34,000 homes in Auckland over the next 10 years. It will fund the $2.25bn first phase with $1.1bn of borrowing and the rest from Housing New Zealand's balance sheet.

Both investments are long overdue. But the government's own annual forecast of construction activity shows the sector is struggling to meet its present commitments, let alone accelerate its activity.

Its most recent forecast was for 13,332 homes to be completed in Auckland this year, barely beating the previous record in the early 2000s. Worse, the forecast shows completions falling back to around 12,000 by 2022.

The Productivity Commission's 2012 report on housing gave a long list of reasons why the productivity of the home construction sector had flat-lined since the early 1990s while economy-wide productivity had risen by some 25 per cent. Yet the government has done nothing to prod the sector to improve its game.

Other pre-budget announcements show a similar pattern of increased government spending to achieve more-of-the same outcomes in other sectors. Examples include $304m for the film industry, $178m for the tourism sector, $91m for trade negotiations and market development, and $78m for R&D grants.

Meanwhile, the government is taking an exceptionally leisurely approach to water quality. It has set inadequate standards and given urban and rural users until 2040 to meet them.

By the government's reckoning, it, local councils and farmers will spend only $2bn over 23 years to achieve those standards. This equates to barely $85m a year, or 0.06 percent, of the three sectors' combined annual revenues of some $140bn a year.

*Rod Oram is a UK-born New Zealand business journalist and a regular guest on Nine to Noon, among other media appearances.

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