www.geocities.com/nzwomen/SusanStJohn/2001912TheIndependent.html

 The Independent 12th September 2001
 

The simplistic notions about government spending and taxes in the latest Business Roundtable (BRT) report do not give credibility to your byline ' govt spending could be slashed' (29th August). While it may suit the ideology of the BRT to portray a bloated state the figures simply don't support it. The latest OECD figures show New Zealand government spending at 36.4% of GDP which is modest compared to other successful countries (eg UK 37.8%, Norway 43%, Denmark 52.4% Germany 44.8%, Canada 42%). The BRT claim that the New Zealand ratio has increased since 1996 is also not supported by budget data. The 2001 figure is 34% and the next two years are projected to be slightly under that.

Instead of up-to date figures the report gives a table that compares 1960 with 1990. There are no caveats about fiscally neutral changes. For instance, government spending was notionally increased from the mid 1980s by the decision to gross up and tax social welfare benefits, the introduction of GST and the decision to treat all family tax credits as gross spending instead of tax offsets. In contrast to many other countries the state pension in New Zealand is fully taxed, but the tax flows straight back, inflating both the tax and the spending figures. In Australia for example most old age pensioners pay no tax. Adjusting for tax on pensions alone would reduce New Zealand's government spending ratio a couple of percentage points.

We also abolished tax concessions of all kinds in the late 1980s. These hidden forms of government spending are widely used in other countries and make their ratios of both tax and spending look smaller than proper accounting would demand. These types of concerns suggest that much care is needed in making international comparisons. In determining social expenditures by the state on a comparable basis, the OECD has produced working papers outlining the many adjustments that are needed. Inevitably these adjustments substantially decrease the ratio for high spending countries and increase it for low, making the differences much less apparent.

In terms of the overall attack on the welfare state that the BRT report represents, the recent words of eminent economist Nicholas Barr should be heeded:

"... contrary to widely held views - the welfare state exists for reasons additional to and separate from poverty relief, reasons that arise out of pervasive problems of imperfect information, risk and uncertainty. The welfare state is here to stay since twenty first century developments do nothing to undermine those reasons - if anything the reverse."
 

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