Wednesday, January 25, 2006

Some facts on government spending

After six years of good economic weather, things are finally starting to go sour. National of course places the blame squarely on the government, with finance spokesperson John Key saying that the government has

fuelled inflation by massively expanding government spending since 1999, which in turn has fuelled interest rates that are now the highest in the Western world.

(Emphasis added).

Unfortunately for Key, the actual numbers tell a different story. Here's some figures from the "fiscal outlook" sections of the 1999 Budget Economic Fiscal Update (National's last budget) and the December 2005 Half Year Economic & Fiscal Update (where we are under Labour):

1999 BEFU2005 HYEFU
Core crown revenue34.5%34.5%
Taxation revenue32.4%31.2%
Core crown expenses35.1%30.6%

(Source: Table 2.1, 1999 BEFU, and Tables 2.3 and 2.4, 2005 HYEFU. To avoid any doubt, I am using the "1999/2000 Projection / Budget" and "2005 Actual" columns. All figures are as a percentage of GDP).

Massive expansion of government spending? I wish. In reality, the government has been extremely tight-fisted, funnelling surplus revenue into the Cullen fund, paying off debt, and rebuilding infrastructure after a decade of underinvestment under National. While there has of course been an increase in nominal terms, Labour are actually spending less as a percentage of GDP than National was in their last year in office - and taxing us less to boot. But clearly John Key doesn't see why these facts should be allowed to get in the way of a good smear.


This comment has been removed by a blog administrator. Posted by Matt : 1/25/2006 08:41:00 PM


I've also failed to notice any economic commentator noting the fact that running surpluses causes contractions in the monetary supply - in essence, funnelling money out of the economy.

Still, political debate is fought in the realm of ideas, not necessarily facts.

Hence, I've avoided out-and-out political writing. Playing in the bearpit, with your head in the clouds and feet in clay, seems like a waste of time.

Policy wonks of the world unite.


[PS: gramatical error in early post]

Posted by Matt : 1/25/2006 08:43:00 PM

"It is a mistake to make propaganda many sided, like scientific instruction, for instance. The receptivity of the great masses is very limited, their intelligence is small, but their power of forgetting is enormous... all effective propaganada must be limited to a very few points and must harp on these in slogans until the last member of the public understands what you want him to understand by your slogan..."

John Key as explained by Adolf Hitler.

Posted by Sanctuary : 1/25/2006 09:05:00 PM

I've linked to similar data at DPF's about four times in the last six no effect whatsoever.

The right wingers simply ignore it and go on repeating the outright lies they want to believe. Key knows that by repeating a lie often enough, it will have the effect desired.

Posted by Anonymous : 1/25/2006 09:18:00 PM

Thanks I/S. I am amazed at your ability to source facts such as these so quickly.
Keep up the good work.

Posted by Anonymous : 1/25/2006 11:10:00 PM

Key may have been wrong stating what he did, but he does have a point in believing that the Government has not done much to stop spending -by taxpayers - nor to address the exchange rate which has stayed constant over 18 months.

One of the real problems is the rich in this country are spending more than they earn by borrowing on their mortgages, overspending on their credit cards and not paying them off every month, and this is encouraged by the banks. The rich from MPs to people who read this blog are doing it every single month.

The lower paid can't do this - they have problems filling their car.

THe beneficaries OTOH, are deep in debt on credit cards or to WINZ and finance companies as they borrow to meet their everyday expenses.

What is Key saying about this?

Posted by Swimming : 1/26/2006 07:33:00 AM

Very few right-wing governments have ever cut spending by very much - look up the numbers for Thatcher, for instance. Tories have more special pleaders than Labour, wanting more guns, more cops, more highways, more jails, less immigrants (ok - a tax drop not spending rise on that one). And right-wing lobbyists, like construction firms have a lot more power and infludence than Labour ones like trade unions.

Posted by Rich : 1/26/2006 02:40:00 PM


you just make yourself the agent of propoganda by talking that way.

The percentage of GDP figure is a weak one. as DPF notes if the economy went into a depression and lost 10% inflation adjusted (over 2 years lets say) would you accept the same reduction occur in welfare and all other spending? right when everyone really needed the help - as opposed to now when relitively speaking they dont?

That doesn't mean that absolute value (inflation adjsuted) is the only way to look at it but in general it looks like it is superior to the % of GDP number. So you really dont have much grounds to be getting all self rightious.

Posted by Genius : 1/28/2006 11:23:00 PM

A comment from Keith Ng, passed on because he has trouble with his phone ATM:

Government spending in absolute terms is relevant. Afterall, even if
everyone doubles their income (and therefore GDP doubles), it doesn't
mean that they'll need twice as many hip operations/hip-hop tours. In that
sense, an absolute increase in government spending *is* a real
increase. But does it constitute a "massive expansion"? Well, how big is big?

But anyway, stressing government "overspending" has little to do with
exchange rates - it's just a National Party straw man that allows them
to go on about government waste, hip-hop tours and moonlight golf.

It's a straw man because there's no way in hell that anyone can
demonstrate that a high exchange rate is caused by high interest rates *and*
that high interest rates is caused by government spending.

For example, he says that high currency is caused by high interest
rates. But what about greater consumer spending? Higher national debt?
Increased tourism? Each one of these things - as well as high interest
rates - contribute to a high exchange rate, but Key's in no position to say
that one and not the others is *the* cause of the high exchange rates.

And even if he could show that high interest rate was the cause of high
exchange rate - he again doesn't know that government spending is *the*
cause of high interest rates. What about high business confidence? High
consumption? High property prices? Low savings?

The rhetoric is all a part of their overall strategy to:

1) Create the perception that the government and its bureaucracies are
wasteful and frivolous.
2) Tie Labour with "waste".
3) Blame all our past, present, future and parallel-universe woes on
"waste", and therefore Labour.

It's just a straw man.

Posted by Idiot/Savant : 1/29/2006 11:31:00 AM