Budget 2017 analysis of real per person spending shows real winners and losers

Researchers at Victoria University of Wellington and the New Zealand Institute of Economic Research (NZIER) have found that while overall real per capita government spending is stable, a breakdown of new and projected Crown expenditure shows a significant transformation in the make-up of government spending.

Education spending is projected to fall by 1.6% in the 2017 Budget year, with spending falling relative to population and inflation by 7.9% by 2021.

Real per capita spending in health will fall slightly the coming Budget year (-0.1%), but over the forecast period is projected to fall to 7.5% below current levels by 2021.

Those areas seeing significant increases during the new Budget year include law and order (+5.3%), defence (+2.0%), and welfare (excluding New Zealand Superannuation) (+0.9%). However, all are projected to fall over the medium term as future operating allowances decrease.

Real per person spending on New Zealand Superannuation is set to increase steadily, with a 2.5% increase in 2017 rising to 9.1% above current levels in 2021.

Several smaller categories of spending have seen large increases in spending in 2017, including economic and industrial services, transport and communication and environmental protection.

The attached table shows further breakdowns of real per capita spending changes.

Head of Victoria’s School of Government Professor Girol Karacaoglu says this analysis provides New Zealanders with a more accessible way to understand Government spending decisions.

“This Budget sets out a much-changed shape of the state when it comes to core services such as health, education and law and order, and it is important that New Zealanders have a solid understanding of what these changes mean in real, per capita terms.”

NZIER Principal Economist and Head of Public Good Derek Gill says the analysis will help put the spotlight on the quality of government spending.

“For example questions should be asked about the social return on the sharp increase in spending on law and order. Effective social investment would shift resources into the back-end of the justice system putting more effort in well targeted prevention rather than negative spending on the front-end of law and order system.”

Approach

The researchers say the analysis has been produced on the basis of adjusting all areas of core central government spending for the consumer price index (CPI) and population changes. “We caution that this approach does not directly address cost pressures in specific areas of spending, or the changing demand for government services within the nation’s population. Researchers are not commenting on outputs, or the quality of government spending.”

“Accompanying this announcement is a full account of our methodology and assumptions. Wherever possible, the figures, projections and assumptions have been taken directly from government sources and applied to the new spending information in Budget 2017.”

The data and interactive visualisations will be available on https://data1850.nz/ shortly. NZIER’s analysis was supported by its public good programme.

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