1 00:00:00,160 --> 00:00:04,040 Speaker 1: Now, after the initial shock about Finance Minister Nikola Willis's 2 00:00:04,120 --> 00:00:06,480 Speaker 1: almost zero budget, there are now calls for her to 3 00:00:06,519 --> 00:00:09,399 Speaker 1: go even further now. She announced yesterday that she's given 4 00:00:09,440 --> 00:00:12,399 Speaker 1: herself an operating allowance of one point three billion dollars 5 00:00:12,720 --> 00:00:14,880 Speaker 1: for next month's budget, but most of that, in fact, 6 00:00:15,000 --> 00:00:18,000 Speaker 1: all of that has already been allocated. Plus. Eric Crampton 7 00:00:18,120 --> 00:00:19,800 Speaker 1: is the New Zealand Initiatives economist. 8 00:00:19,800 --> 00:00:21,480 Speaker 2: Hey, Eric, good afternoon. 9 00:00:21,600 --> 00:00:22,959 Speaker 1: How much harder would you like her to go? 10 00:00:24,680 --> 00:00:28,040 Speaker 2: We have a massive structural deficit. On the numbers that 11 00:00:28,120 --> 00:00:31,159 Speaker 2: Mike Ridell reported recently from the IMF, it's about the 12 00:00:31,200 --> 00:00:35,120 Speaker 2: worst in the OECD if you compare it to overall GDP. 13 00:00:35,720 --> 00:00:38,199 Speaker 2: That's not good. The Public Finance Act says we are 14 00:00:38,200 --> 00:00:41,559 Speaker 2: really not supposed to do this, So cutting until we 15 00:00:41,720 --> 00:00:44,800 Speaker 2: no longer have a structural deficit would be a very 16 00:00:44,840 --> 00:00:47,839 Speaker 2: good idea. That doesn't mean that we can't have a deficit. 17 00:00:47,880 --> 00:00:50,599 Speaker 2: If we're having a downturn, it's normal to have a deficit, 18 00:00:50,680 --> 00:00:53,360 Speaker 2: but a structural deficit is one where even if the 19 00:00:53,400 --> 00:00:56,360 Speaker 2: economy we're firing on all cylinders, we would still have 20 00:00:56,400 --> 00:00:58,880 Speaker 2: a deficit. That's a problem. We've had one since about 21 00:00:58,880 --> 00:01:01,360 Speaker 2: twenty twenty, it was justifiable in COVID. It is no 22 00:01:01,440 --> 00:01:02,560 Speaker 2: longer justifiable now. 23 00:01:02,680 --> 00:01:03,320 Speaker 1: How big is it? 24 00:01:05,480 --> 00:01:09,080 Speaker 2: Well, in the figures that Microdell had put up, it 25 00:01:09,240 --> 00:01:12,440 Speaker 2: was substantial percents of GDP. I would have to double 26 00:01:12,520 --> 00:01:14,480 Speaker 2: check the exact number, but it was worse even than 27 00:01:14,520 --> 00:01:17,920 Speaker 2: the United States, which is having awful budget blowouts. The 28 00:01:18,680 --> 00:01:21,120 Speaker 2: problem is less on the tax side and more on 29 00:01:21,160 --> 00:01:23,720 Speaker 2: the spending side. So if you remember back to budget 30 00:01:23,760 --> 00:01:26,720 Speaker 2: twenty nineteen, the great well being budget that was going 31 00:01:26,800 --> 00:01:30,400 Speaker 2: to solve every problem that the country had and keep 32 00:01:30,440 --> 00:01:33,640 Speaker 2: government spending blow twenty nine percent of GDP. Well, our 33 00:01:33,720 --> 00:01:37,320 Speaker 2: tax take or core cround tax take is above where 34 00:01:37,360 --> 00:01:40,160 Speaker 2: it was in twenty nineteen as a fraction of GDP. 35 00:01:40,800 --> 00:01:45,000 Speaker 2: The problem is that government spending outpaced it considerably. So 36 00:01:46,040 --> 00:01:50,240 Speaker 2: we're now looking at well north of thirty percent of GDP. 37 00:01:50,920 --> 00:01:53,800 Speaker 2: And some of that is financing costs. But financing cost 38 00:01:53,960 --> 00:01:56,760 Speaker 2: isn't the whole problem, but it is it is a 39 00:01:56,800 --> 00:01:58,680 Speaker 2: big part of the problem. 40 00:01:58,880 --> 00:02:01,920 Speaker 1: How much like? Okay, So what are we looking at 41 00:02:01,960 --> 00:02:04,120 Speaker 1: in terms what do we need to cut in order 42 00:02:04,160 --> 00:02:07,320 Speaker 1: to save the situation? Would we get by with entire 43 00:02:07,360 --> 00:02:09,640 Speaker 1: government departments or are you going to come after the pension. 44 00:02:11,600 --> 00:02:15,359 Speaker 2: Well, the big problems are in continued increases in transfers 45 00:02:15,360 --> 00:02:17,680 Speaker 2: to the elderly. Really that we've got these large transfer 46 00:02:17,720 --> 00:02:20,080 Speaker 2: programs that will get a lot more unaffordable in the 47 00:02:20,080 --> 00:02:20,720 Speaker 2: twenty thirties. 48 00:02:20,760 --> 00:02:22,160 Speaker 1: You're talking about the Paintion run. 49 00:02:23,160 --> 00:02:26,000 Speaker 2: Yeah, pension, but also combined with health spending, So those 50 00:02:26,040 --> 00:02:28,400 Speaker 2: together are going to be blowing out in the twenty thirties, 51 00:02:28,400 --> 00:02:31,480 Speaker 2: and having things set well ahead of that to avoid 52 00:02:32,000 --> 00:02:34,359 Speaker 2: well right now is kind of a good times, right 53 00:02:34,480 --> 00:02:37,240 Speaker 2: compared it to in the twenty thirties, when we will 54 00:02:37,280 --> 00:02:39,920 Speaker 2: have a much worse dependency ratio. So getting things in 55 00:02:40,000 --> 00:02:42,280 Speaker 2: line ahead of that would be a good idea. There's 56 00:02:42,320 --> 00:02:45,560 Speaker 2: been talk about means testing for a few programs, some 57 00:02:45,639 --> 00:02:47,800 Speaker 2: of which should have just been ended, like the winter 58 00:02:47,919 --> 00:02:52,200 Speaker 2: energy payments. At least means testing would make sense. About 59 00:02:52,200 --> 00:02:54,480 Speaker 2: a decade ago, I had put out a report looking 60 00:02:54,560 --> 00:02:58,520 Speaker 2: at reinstating interest on student loans. We're still providing those 61 00:02:58,840 --> 00:03:01,919 Speaker 2: on an interest freebase to all comers. I'm not sure 62 00:03:01,960 --> 00:03:05,120 Speaker 2: that that makes a lot of sense. Economist Studonovan had 63 00:03:05,120 --> 00:03:08,280 Speaker 2: put some rough numbers on it on Twitter today, figuring 64 00:03:08,360 --> 00:03:12,519 Speaker 2: that even just in charging for inflation on it would 65 00:03:12,600 --> 00:03:14,799 Speaker 2: save the government about two hundred million dollars a year, 66 00:03:15,240 --> 00:03:19,080 Speaker 2: which doesn't touch the sides of the deficit on its own, 67 00:03:19,280 --> 00:03:22,840 Speaker 2: but in combination with other things could help. So when 68 00:03:22,840 --> 00:03:26,919 Speaker 2: you're running high inflation and zero percent student loans, the 69 00:03:26,960 --> 00:03:30,760 Speaker 2: government is basically paying you to borrow. It's because the 70 00:03:30,800 --> 00:03:34,640 Speaker 2: real value that just erodes over time within with inflation. 71 00:03:34,920 --> 00:03:36,720 Speaker 1: Have we ever had a situation we go back to 72 00:03:36,720 --> 00:03:38,600 Speaker 1: twenty eleven, we had a zero budget where we had 73 00:03:38,640 --> 00:03:41,240 Speaker 1: no increases. Right, it's become conventional to just increase the 74 00:03:41,240 --> 00:03:43,560 Speaker 1: budget every single year. Have we ever had a situation 75 00:03:43,640 --> 00:03:46,400 Speaker 1: where we have cut the amount of spending from one 76 00:03:46,440 --> 00:03:47,160 Speaker 1: year to the next? 77 00:03:48,720 --> 00:03:50,680 Speaker 2: I having those numbers in front of me. There was 78 00:03:50,720 --> 00:03:53,840 Speaker 2: of course substantial fiscal consolidation in the nineteen ninety one 79 00:03:53,840 --> 00:03:56,960 Speaker 2: budget when they had a very large problem to deal with. 80 00:03:57,480 --> 00:04:00,200 Speaker 2: The approach in twenty from after coming out of the 81 00:04:00,240 --> 00:04:03,800 Speaker 2: GFC was more of this kind of fiscal restraint that 82 00:04:04,680 --> 00:04:07,400 Speaker 2: Minister Willis is trying to use, where you have tight 83 00:04:07,480 --> 00:04:09,960 Speaker 2: operating budgets and then count on economic growth to pull 84 00:04:10,000 --> 00:04:11,920 Speaker 2: you out of it. The problem that we've got with 85 00:04:11,960 --> 00:04:15,720 Speaker 2: that now is that the economic forecast globally is far 86 00:04:15,800 --> 00:04:17,640 Speaker 2: worse than it would have been even a year ago. 87 00:04:18,640 --> 00:04:21,440 Speaker 2: The tariff situation in the United States is depressing global 88 00:04:21,440 --> 00:04:24,600 Speaker 2: economic prospects that will hit New Zealand as well as 89 00:04:24,640 --> 00:04:27,600 Speaker 2: hitting all of our trading partners. That means it will 90 00:04:27,640 --> 00:04:29,760 Speaker 2: be harder to grow our way out of it, so 91 00:04:29,839 --> 00:04:32,240 Speaker 2: you need to rely more on actual spending restraint. 92 00:04:32,760 --> 00:04:34,520 Speaker 1: Eric, it's good to talk to you. I really appreciate it. 93 00:04:34,520 --> 00:04:37,320 Speaker 1: Thanks for your tom. That's Eric Crampton, the economist at 94 00:04:37,320 --> 00:04:41,080 Speaker 1: the New Zealand Initiative. 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