Opinion: Budget 2024 lives up to a dispiriting tradition of short-termism

Opinion – What are the generational effects of Budget 2024? It’s a bit complicated, because some decisions today will be felt differently across different generations – but actions (or more importantly inactions) will also affect future generations when current decision-makers are long gone.

The focus on Budgets tends to be quite short-term because they set out detailed spending goals for the coming financial year, and a broader plan for the following three years.

But the choices in a Budget can also signal broader shifts in philosophy in what the government does and does not do, or to what extent or quality. It can set the tone for a smaller or larger government, and it can prioritise current generations over future ones. It can choose to park the hard issues, or tackle them head on.

Read more on Budget 2024:

A potpourri of generational issues

One immediate change in this Budget is in welfare. While superannuation remains universal and pegged to average wages, other benefits are heavily means tested and are pegged to consumer prices, which increase less than wages. This means over time, older beneficiaries will be better off than all other younger and usually poorer beneficiaries.

The collection of initiatives targeting child poverty are predicted to do little. Generationally this is a damning failure, in this Budget and successive governments. The impact of child poverty on his or her future prospects are well known. And this remains an ugly reminder of New Zealand’s tolerance (or is it acceptance?) of poverty.

One policy that may seem egregiously against young people, which is perhaps not as bad as it seems, is the removal of the first home buyer subsidy. For those who received it, it was a godsend. But it was not good policy, because it created a lottery for a lucky few, but – at the margin – added demand for housing and increased house prices, and that money was not used for those who needed housing more, like those 25,527 people on the housing register. This money is better spent on social housing, for those who are in confirmed high and extreme need.

Changes to tax in Budget 2024

The fiscal management of recent years, continued in this Budget, is storing up problems for future generations. Borrowing during crises (such as the Canterbury earthquakes or Covid) is understandable, because that is the proverbial rainy day, but they should be repaid in the good times. Debt should be used to fund investments in infrastructure that create long term prosperity; the rest funded out of taxes.

Borrowing in this Budget to fund tax cuts and operating spending is like earning less and living off the overdraft. For now, the level of debt is entirely manageable – it is not a crisis. But every new emergency, say a big flood or cyclone, will eat away at this headroom. This increase in borrowing chooses to rack up debt for future generations to give tax cuts now.

Speaking of infrastructure, the forecast spending on capital expenditure is set to slow from this year – even though New Zealand has a well-documented infrastructure deficit. Throwing more money at new assets is not the biggest problem – it is that we haven’t and don’t seem to want to maintain what we do have. The budget included plans to fund new roads, potentially using public-private partnerships and tolls and various other things. Those are all fine to consider, as long as they deliver more benefits than costs.

What we need is a non-political approach to ringfencing stable maintenance funding – else we keep funding exciting ribbon-cutting opportunities over looking after what we have. For future generations, a dollar spent on maintenance today may well be worth more than a dollar spent on a vanity project.

Climate change policies were largely pulled back in the latest Budget. That will mean we do less on mitigation, adaptation and require purchasing offshore carbon credits in the future. For future generations, it’s another can kicked down the road.

Tax cuts highlight that New Zealand continues to want lower taxes, more and better public services, and less borrowing. It is an impossible mix and this Budget showed that. It gave tax cuts, but they were smaller than campaigned on in the election.

Stylised illustration of knife cutting through stack of money on chopping board surrounded by vegetables

The government cut spending, but could not keep debt down as promised. It had to cut other promises, like new cancer drugs, to make it kind of fit. There is no magic way to do all of this. We have to decide what level of public services we want and pay for it with taxes.

The reality is that about 90 percent of our tax revenue is paid by people aged between 15-64. As our population ages, our tax revenue will be under slow but irreversible pressures. We can choose to broaden our taxes to include wealth or capital now, or we can keep kicking the can down the road to future generations.

Finally, one possible silver lining. The drive for austerity will force a conversation about what public services we do and don’t want, and at what level of service. I have (slim) hope that this conversation will help us decide, one way or the other, what level of taxes and services we want.

A dispiriting tradition of short-sightedness

This Budget, like many before it, has lived up to a dispiriting tradition of short-termism. Our spending is too lavish relative to our taxes. We are too timid on our long-term challenges. We make decisions in Budgets that are convenient for today, but stores up problems for future generations.

Does this Budget set up future generations for success? No. Is this budget unique? No. Budgets are just one facet of government.

Intergenerational fairness will not come from here. It will come from greater public desire for settings that are fair and good for New Zealand, and willingness to make some sacrifices to make that happen.

*Shamubeel Eaqub is an economist and chartered financial analyst. He is a director of the consultancy service Eaqub and Eaqub Limited.

According to the news on Radio New Zealand

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