Making Sense of Budget 2013

John Key, Bill English, and the bulk of the media have presented Budget 2013 as providing responsible economic management that will benefit all New Zealanders. There are sound reasons to reject this depiction.

Media Coverage of the Budget

Reading through the lengthy compilation of media commentary on the budget by Bryce Edwards and his research assistants, released in his New Zealand Politics Daily, I was struck by how superficial, repetitive, and just plain stupid most of this commentary is. It told me nothing that I didn’t already know from reading the budget itself since it did little more than summarise the budget. There was virtually no analysis apart from a few brief assessments of the likely impact on National’s electoral fortunes in 2014.  Even more annoying was the obvious pro-National bias of most of New Zealand’s major daily newspapers, with the general theme being that it showed what great job Key and English were doing managing the economy in the interests of all New Zealanders.

The media commentaries are appallingly weak even as descriptive policy analysis. For example, they all fail to take inflation into account when outlining the Government’s spending initiatives. The biggest spending initiative of the Government, indeed the only area where the Government appears to be very slightly expanding funding in real terms, is health.

But the health budget is so huge, projected to be $14.7 billion by 2014, that even if inflation is low (forecast to be around 2.0% over the next four years), the Government needs to increase before-tax or nominal spending by quite a large amount just to maintain the same level of real funding once the cost rises associated with inflation are taken into account.

Using the Government’s own budget figures and forecasts (CPI increases of 2% per year), this means that spending on health needs to increase by around $1.2 billion over the next four years just to keep up with inflation, and this means that in real terms the Government is only increasing health funding in real terms by around $100 million per year. In percentage terms this works out to around 0.068% (less than 1%) per year for the next four years- and this has been uncritically presented by the media to the public as constituting the Government’s ‘big spend’. It also means that the Government is actually cutting funding for other government services in real terms, but we aren’t being told much about this.

More importantly, in order to really understand the nature and significance of Budget 2013 it is necessary to be clear about whose interests it serves and, closely related to this, to place it in the historical context of New Zealand from 1984 to the present. This includes taking into account the changing state of the economy and shifts in the balance of class forces between capitalists and their allies, on one side, and workers and their allies on the other.

A Budget by the Rich for the Rich

The first and most important thing to note about this budget is that it is a budget by the rich for the rich. By this I mean not only that John Key, Bill English, and the most important backers of their government are all rich, but also that it is maintaining a neoliberal policy regime that the official statistics show has benefited the top 10% while disadvantaging the majority of New Zealanders on low and middle incomes.

The term ‘neoliberal policy regime’ refers to the implementation and entrenchment of neoliberal policies by successive Labour and National governments since 1984. These policies include a monetarist approach to managing the economy in which maintaining low inflation is given priority over maintaining full employment, and in fact mass unemployment is used to keep inflation down, tax cuts for the rich and tax increases for the poor and middle income earners, repeated attacks on welfare beneficiaries, anti-union employment relations reform, and so forth.

The overall effect of these policies on the distribution of income and wealth is now so clear that it is beyond dispute- it has greatly increased socio-economic inequality. Bryan Perry, who works at the Ministry of Social Development, produces annual reports that provide heaps of useful facts and figures about the increase in inequality since 1982. These reports show that the top 1% has increased its share of total household income from 4% to 9% since 1982, that the top 10% get around 39% of total market income every year, while owning more than 50% of wealth, and that the bottom 50% of New Zealanders get less than 15% of total market income. The relevance of this to the current budget will become clear shortly. Read on.

Why should we give a damn about the budget? Does it really matter?

The release of the Government’s budget is important because it provides a clear indication of the Government’s overall approach to economic management and policy-making. Crucially it outlines if, and where, the government is going to match its rhetoric and hype with actual spending. Thus the budget has real effects on the economy, welfare provision, health, education, housing, employment relations and much else.

So yes, we should give a damn. And, yes, we should expect more from the media than uncritical summaries and cheerleading for the team led by Key and co. For example, in view of the facts it is clear that every year that the central foundations of the neoliberal policy regime are maintained, whether by National or Labour, this overwhelmingly benefits the top 10% of New Zealanders. In other words a ‘steady as she goes’, ‘do nothing budget’, is already a budget that it going to do very little to help the majority on low and middle incomes while doing a lot to help the people who need it least – the rich.

Is it really impossible to eliminate poverty and inequality?

National’s most outrageous claim around the Budget came from Bill English when he stated, “We don’t believe that there is a solution to poverty in general so I wouldn’t expect any large scale intervention”. Well it’s certainly not possible if you cut taxes for the rich but not for the poor by, for example, removing GST from food and other essentials and making the first $20k of income tax free. Green MP Jan Logie has criticised English’s callous statement in a blog post here.

Let’s be clear about this – poverty is caused by human beings organising society in a particular way. Governments, even within the framework of capitalism, can do things to greatly reduce poverty. For example, in New Zealand throughout the 1950s and 1960s there was still a lot of inequality but there was virtually no dire poverty because there was full employment, a generous welfare state, adequate state housing, freely accessible education, and so forth.

The truth is that it is possible to eliminate poverty and substantially reduce inequality. This could be done if, for example, the Government cut GST altogether or, at the very least reduced the rate to 10% and removed GST from food, electricity, and other essentials, made the first $20,000 of income tax-free, and introduced a universal basic income. (See Matt McCarten’s left-wing alternative budget for some examples of this).

The reason that this sort of thing is not happening is that it is against the interests of the key supporters of the Key Government, primarily business and farmers.

How can we stop governments ruling for the rich?

The short answer is that we can’t do this unless we overthrow capitalism because whoever runs the New Zealand state, and whichever party is in power, is running a state that is wedded to capitalism in a myriad of ways. Among other things, socio-economic inequality ensures that business and farmers can exert disproportionate influence over government. Governments are dependent upon the taxation of incomes generated by the private sector of the economy to fund their operations, so they are fiscally dependent on the incomes generated by private capital accumulation and are therefore committed to maintaining the health of this process. Finally, as noted above, the media is largely owned by business and overall acts to ideologically legitimate the status quo and marginalize the views of its radical critics.

Having said this, it may be quite a while before the overthrow of capitalism becomes a realistic possibility. So what are we to do in the shorter term? Can we force governments to introduce policies that will benefit the majority rather than the small rich and politically influential minority that dominates what governments do, and why they do it?

The short answer is yes, but only if we are very clear about where the real power lies in society. It does not reside in parliament but in the ‘business and farming communities’, on one side, and with workers and their allies, on the other. We also need to clearly understand that the socio-political forces that can successfully push for reforms that will benefit the majority lie outside of the parliamentary system.

Business is constantly lobbying government to implement the policies that it wants. This is class struggle, but it is a form of class struggle that the media presents as polite, respectable, and ultimately in everyone’s interests. The truth is that effectively opposing the political influence of business and farmers requires a lot more than counter-lobbying by the unions, NGOs, and progressive social movements. Much more importantly, to be effective it has to centrally involve organising in our unions, on our campuses, and in our communities to mobilise what we do have on our side – the working class majority of the people – in strikes, protests, and campaigns.

For over twenty years, levels of working class struggle have been very low in historical terms. But this situation is not going to last forever. Every major upsurge of working class struggle in this country (1908-1913, 1948-51, 1968-1979) has been preceded by a prolonged period in which socio-economic inequality as increased, and working people’s share of national income has declined.

When members of the working class majority come to appreciate that they can fight and win, when workers are taking action themselves and not relying on Green and Labour politicians to change things on their behalf, this is when, at the very least, governments will be forced to offer the majority of ‘poor and middling’ folks more than crumbs from the table, but a fairer slice of the cake. Of course, when this happens, and we know it will even if we don’t know precisely when it will, we in the International Socialists will be arguing that workers and their allies shouldn’t be content with a larger slice of the cake – rather they should be taking over the bakery!

Further Reading

For a fuller and more detaild analysis of the Government’s approach to economic and social policy can check out my article: ‘The Fifth (Key) National Government’s Neoliberal Policy Agenda: Description, Analysis, and Critical Evaluation.’ New Zealand Sociology 26 (1): 12-40 (2011).