A Budget Primer

Today is perhaps the most exciting day of the year for political tragics, for it is the day on which the Government releases its annual budget.  For the past decade I have made a habit out of sitting down every budget day and listening or watching the Finance Minister present the Budget and every year I would try my best to understand what it meant from a macro-economic stand point.  Individual policies, expenditure cuts or increase, or revenue cuts and increases did not, and do not interest me.  You cannot assess a Budget on the basis of whether or not it includes your pet project or special interest.  You cannot assess a Budget based on how much extra money you will receive or how much money will be taken away from you.  Rather, a Budget should only ever be assessed in its entirety.  What does this Budget tell us about the direction the Government is guiding us?  What implications does this Budget have on the wider economy, both domestically and internationally? And what effect does this Budget have on growth, wealth, and inequality throughout society?

From a Māori perspective, there will be initiatives targeted towards specific Māori issues, some of which have already been announced.  I do not intend to go into those in any great detail, although I will look to provide an analysis early next week once I have had time to assess the data.  Bottom line, the budget for Māori Affairs is relatively small, and not since Labour’s ill-fated Closing The Gaps strategy has there been a Budget which focused primarily on Māori issues.  Central questions specifically relating to Māori will be the extent to which Whānau Ora is funded, and the Crown’s resourcing of Māori institutions such as Te Puni Kokiri and the Waitangi Tribunal.

I write this primer to provide a bit of wider context for readers of Māori Law and Politics on this year’s Budget, and to highlight some of the implications that will flow from it.

Austerity

There has been a lot of comment in the media over the past months about “austerity”.  Austerity occurs when a Government seeks to cut a budget deficit by reducing spending.  That qualifier is key – by reducing spending.  This National Government is not engaged in austerity.  It is not cutting Government expenditure.  Quite the opposite.  Since 2008, Government spending has increased 33%, from $75bn to $100bn per annum.  This Government is spending more on welfare payments than any previous Government.  It is also investing money in infrastructure (roads, broadband and the Christchurch rebuild) at a rate unprecedented in New Zealand’s history.  In fact, only Muldoon’s Think Big project in the 1970s and 1980s and Julius Vogels’ Nation-Building project in the late 1800s come anywhere near this level of Government investment in infrastructure.

This is not to say that each individual infrastructure project being undertaken by the Government is the most effective use of its resources.  Some projects, such as the Fibre to the Home Broadband project and the new Kopu Bridge should ultimately prove to be good investments.  Other projects such as the Warkworth to Wellsford highway are more controversial.  And that is even before you start debating the relative merits of investing in road over rail.

The point remains, however the Opposition seeks to spin it, that there has been a substantial amount of new spending by the Government over the past three years.  It is, however, unlikely for that trend to continue as the Government has been quick to point out that there will be “no new spending” in this year’s budget as they seek to return to Government accounts to surplus.  Many are even calling it the “Zero Budget”.

“No New Spending”

National has been selling this Budget on the basis that there will be “no new spending”.  No new spending is, according to the Government, required in order to bring the Government’s accounts back into surplus.  Critics like to paint no new spending as austerity, and will often focus on cuts to specific programmes to prove their point.  However, the infographic prepared by Keith Ng over at Public Address is incredibly illuminating on this point.  While funding for some programmes are being cut, the Government is redistributing that funding to other programmes.  The net effect is that overall Government expenditure either remains the same, or, as is the case currently, continues to increase due to the effects of population growth, an increasing unemployment rate, and an increase in the number of people receiving superannuation.

Debt

The issue of debt is perhaps the most complex issue in New Zealand politics at the moment.  In raw terms, Government debt has increased from $20bn in 2005 to $40bn today, and is expected to increase further over the coming years.  As I stated above, this Government has been spending at a rate which is almost unprecedented in our Nation’s history, and the majority of that spending has been financed by borrowing money from overseas banks.

The issue of debt is a complex one because of the two competing narratives that are being told.  The opposition on the one hand seek to criticise the Government for engaging in austerity and cutting spending when it should be expanding spending; yet on the other hand the Government stands accused of financial irresponsibility for overseeing such a massive increase in debt levels – debt undertaken in order to pay for the spending increase discussed above.  It cannot be both!

This belies a bigger question: Is debt good or bad?  One school of thought is that because the Government can borrow money at such a low rate on the international markets, then it makes sense to borrow and invest that money in infrastructure in New Zealand.  Borrowing from overseas sources provides an inflow of money into our economy and this helps promote economic growth.  So far so good.  If the Government did not borrow money from overseas then it would have to raise domestic taxes in order to meet its spending obligations.  Such a redistribution of wealth within a society does nothing to improve economic growth, but does at least attempt to deal with inequality within a society.

The second school of thought is that debt is not a good thing.  Not only does the Government have to pay back what it has borrowed, but it must also do so with interest.  And while interest rates are low at the moment, there is no guarantee that they will stay that way into the future.  With current debt at $40bn and the cost of borrowing at 4%, the Government is required to pay approximately $1.6bn a year in interest payments.  However, if the Government continues to borrow money and debt reaches $75bn in 2016 then rising interest rates will drastically increase the cost of borrowing.  At 4%, the Government will pay $3bn in interest, but if interest rates rise to 6%, then the Government will have to pay $4.5bn a year in interest costs alone.  To put that into context, the current Budget for education is $4.2bn and the Māori Affairs Budget is $191 million.

Growth and Trade

Everyone nowadays seems to be a mercantilist.  For those who did not study economics, or who were not born in the 1800s, mercantilism is the economic theory that, crudely defined, seeks to promote exports and reduce imports as a means of increasing national wealth.  The major flaw with mercantilism is that not every nation can “win” when engaging in mercantilism.  Simply put, if I was trying to sell goods to you while not buying anything from you; and you were trying to sell goods to me while not buying anything from me; then trade would not happen between us.  So while a focus on supporting exporters should be at the core of every Government’s approach to economic growth, it is incredibly naive to pursue it as your main strategy.

There has been a lot of talk from opposition parties, and several economists, that the Government or the Reserve Bank needs to intervene in the currency market to drive down the NZ dollar so as to make it easier for our exporters.  This in turn will somehow, magically, improve our countries wealth.  Again, such a strategy is incredibly naive.  A lower NZ dollar will bring in more money for our exports, but it will also mean that we pay more for the goods that we import into New Zealand.  A lower NZ dollar means higher petrol prices, higher car prices, higher TV and electronics prices, higher clothing prices.  Basically, as the NZ dollar falls, the price of any good that we import will increase.  So while devaluing our dollar to promote exports might sound like an attractive idea, in reality the benefits are overstated.  The wider economic impacts of a lower NZ dollar are not being discussed in the same breath as the amazing benefits that will accrue because of it.

Conclusion

No doubt there will be a lot of special interest groups and party activists tomorrow either decrying the budget for the cuts that have been made in their specific areas of interest, or applauding the vision of the Government in allocating funding towards them.  The Budget is always a trade-off over competing interests, and this years will be no different.

Overall, the Government’s desire to finally rein in its spending will lead to a greater emphasis on cutting funding to programmes deemed inefficient and directing that funding to more efficient programmes.  Such redistribution of spending is not austerity, rather it is a re-prioritisation of emphasis.  If you want austerity, go and look at what Richardson did in 1991 or Nordmeyer’s efforts in 1958.  Both Finance Ministers looked to increase excise taxes (Nordmeyer) or cut welfare spending (Richardson, and to a lesser extent Nordmeyer) in response to a widespread recession and increasing Government deficits.

Here is what I will be looking for in today’s budget:

- A clear path to surplus, and a reduction in Government borrowing;

- A halt to the increase in Government spending;

- Measures to broaden the tax base, including the closing of tax loopholes for high income earners;

- A clear policy around investing in infrastructure (road, rail, broadband and other essential works), including a move to more rational and economically justified spending on the Roads of National Significance; and

- A clear strategy to improve the growth, wealth, and equality of New Zealand.

I’m Writing A Book

Yes, you read that right, I am indeed writing a book.  Over the past few months I have engaged in a number of conversations about Māori achievement, or lack thereof, and it has got me thinking about everything that my whānau have overcome to get to where we are today.  It was not an easy road for my tupuna,  my Mother, and her brothers and sisters, yet they have all worked hard to create a life which is an inspiration to myself, my siblings, and my cousins.  Our paths in life were made easier by all the hard work that they put in to get to where they are today.

It is these kinds of stories that I want to collate in order to create a book which can serve as inspiration to our rangatahi.  The stories of ordinary Māori who have fought hard to overcome racism and prejudice to achieve success in their chosen field.  I do not intend for this to be another book detailing the lives of our leaders – the politicians, the esteemed academics, the tribal leaders.  Rather, I want to focus on the unsung heroes of Māori society.  Those who work tirelessly to maintain their Marae, the office worker who goes home every weekend to support his or her whānau, the entrepreneur who has created a thriving business grounded in Tikanga Māori, people who can serve as role models outside of the sporting and political arena.

While I have no doubt that socio-economic factors harm the prospects of Māori achievement, I strongly believe that academic, business, and career success can be achieved regardless of background.  My whānau never had a lot of money, but my Grandparents installed in my Mother and her siblings the importance of their education.  Education created the pathway to a more prosperous future for my whānau, as it did for many other Māori whānau throughout the country.  That is why I am writing this book.  I want to bring together these inspiration stories and create a framework on which we can work to create a more prosperous future for our rangatahi, one that does not involve them fleeing to Australia.

So my request for my readers today is this, if there is anyone you know who serves as an inspiration, put them in touch with me.  I want to talk to as many successful people as possible about this project and I want to share as many stories as I can.

Once More On The Urewera 4

Stephen Franks has written on the excellent Native Affairs discussion of the Urewera 4 trial on Monday Night, and he raises a few points that should be discussed in the Māori context.  I have previously written articles on the trial, and you can find these here, and here.

Franks opens his article with the following comment on the decision of the four defendants to appear on national television:

It was odd that defendants awaiting sentencing were not persuaded by their lawyers out of appearing. What a dilemma they present for the judge, having publicly shown an absence of remorse in the case of the Tuhoe two, and defiance in the case of the Parihaka pair.

The collective decision of the Urewera 4 could well prove to be poorly made.  No Judge is going to look to kindly on their actions, and comments on Monday night.  And while jail sentences will no doubt harden their core support and prove to be a rallying point against the Crown, to think that this is what some people within Te Ao Māori consider to be martyrdom is deeply disturbing.  To what end were these people seeking to achieve deep in the heart of the Urewera’s?  There convictions did not arise because they were protesting some grand social cause, or occupying land that should rightfully return to Māori.

Which brings me to Parihaka.  While I do not doubt the veracity of the claims made by Bailey and Signer that they have the support of some of the people of Parihaka, I find such support to be an insult to the memory of Te Whiti and Tohu and everything they stood for.  Parihaka was founded as a bastion of peaceful resistance following a period of unprecedented bloodshed in Taranaki.  Violence of any kind towards the Crown was strictly forbidden and even when the Crown marched on Parihaka on 5 November 1881, the people of Parihaka remained steadfast in their adherence to peace.  Guns and molotov cocktails do not fit with the history, teachings, and traditions of Parihaka.

Ultimately, we appear to be forgetting the main cause of the grievance of the “terror raids” carried out by the New Zealand Police.  It was not the arrest, trial, and ultimate conviction of the Urewera 4; but rather the callous, brutal, and insulting manner in which the Police conducted themselves on that fateful day. Insult upon insult was forced upon the people of Tuhoe, those completely innocent of any wrongdoing whatsoever.  From setting up a cordon on the confiscation line, to the full commando gear worn by the police, to the intimidation of whanau, and the complete isolation of a community, this was no ordinary police action.  It was the misguided actions of a State enforcing its power and dominance over a community that had done no wrong.

Franks asks why no Māori lawyer could be found to argue the Crown’s case.  It is not because we all believe that those convicted were correct in what they did.  Far from it.  He is correct in his assertion that many Māori were affronted by the actions and excuses of the defendants, but that does not change our utter contempt towards the Police and the State for their actions at Ruatoki.

Time For An Inquiry

With the legal proceedings almost at an end, it is time for an official inquiry.  The reality is that a massive controversy has been simmering in this country for 5 years over what has amounted to a few convictions for firearm offences.  What we have witnessed is a massive structural failure in our legal system.  Poorly drafted legislation, an inefficient and secretive Court system, poor legal advice and advocacy, and an ill-informed and legally-inept legislature has eroded public confidence in the legal system.  Both Crown and Defence Counsel exploited numerous technicalities to drag this case through four years of hearings; the Government has yet to repeal the Suppression of Terrorism Act despite being told by the Solicitor-General that it is simply unworkable in its current form; and the powers of the police to interfere in, and monitor the lives of, citizens continue to expand.

Franks believes that unless we can assemble a team as proficient as the one that designed ACC then any inquiry is doomed to failure.  There is, however, at least one person still around who was instrumental in designing the world-class ACC system.  Perhaps it is time for the Prime Minister to call Sir Geoffrey Palmer and ask him to serve his country one last time.

Another Short Hiatus

Apologies for the lack of new articles of late, I am hard at work on a number of fronts at the moment.  One of the amazing things about actively engaging with the kind of issues that I do here on this site is that new opportunities will continually present themselves and I am actively pursuing these, alongside my regular work programme and LLM studies.  New content and legal and political discussions will be infrequent between now and early July as I take a much needed holiday in June and then travel to Singapore to attend the Legal Histories of the British Empire Conference.

Not that there is not plenty of issues in Māori law and politics at the moment.  The debate over the partial sale of state-owned enterprises drags on, in Taranaki a local Iwi have lost the vast majority of their Crown settlement through a poor investment strategy, and the Government is facing heavy criticism for under-resourcing the Waitangi Tribunal to such an extent that long-awaited District Inquires in Te Paparahi O Te Raki and Te Rohe Pōtae have been delayed once again.

And finally, as my focus shifts much more towards the completion of my LLM thesis, I will be sharing a lot of my research on this site over the coming months.   There is a wealth of information and ideas coming through in my research in relation to indigenous sovereignty which will be of interest to many  readers.