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Budget 2011

Budget 2011. Paul Dalziel Professor of Economics AERU, Lincoln University. Introduction. I make six points in this opening comment. We are living in hard times. We know why times are hard. We know how to cope with hard times. These ways of coping are our responses.

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Budget 2011

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  1. Budget 2011 Paul Dalziel Professor of Economics AERU, Lincoln University

  2. Introduction • I make six points in this opening comment. • We are living in hard times. • We know why times are hard. • We know how to cope with hard times. • These ways of coping are our responses. • So, what is in the Budget? • Welfare reform.

  3. Point 1: We are living in hard times

  4. Point 1: We are living in hard times 3.6 per cent per annum

  5. Point 1: We are living in hard times

  6. Point 1: We are living in hard times

  7. Point 2: We know why times are hard This is a slide from Dr Alan Bollard’s address to the Employment Summit Conference in 2009.

  8. Point 3: We know how to cope Hard times are not unusual and we have learned how to cope when times are hard: • Fiscal Policy – increase public debt • Monetary Policy – lower interest rates • Social Security – unemployment benefits and public support for families

  9. Public Debt

  10. Interest Rates

  11. Number of Main Benefits

  12. Point 4: These are our responses These responses are not something the government does to us. These are mechanisms we have created over the years which the government (in our representative democracy) controls on our behalf.

  13. Point 5: So what is in the Budget? Minister Bill English comments that: “The fallout from the global financial crisis of two years ago is gradually receding.” Consequently, the Budget lays the foundations for how the government intends to phase out the higher debt levels that were accumulated to get us through the worst of the crisis.

  14. Point 5: So what is in the Budget? These foundations are important because a large part of the initial fiscal response were in the form of tax cuts. Tax cuts by their nature favour higher-income households, so that if the removal of the stimulus is in the form of expenditure cuts the overall result will be a further redistribution of income from lower to high income households.

  15. Point 5: So what is in the Budget? • Changes to KiwiSaver • Phasing in more targeted Working for Families • Tighter criteria for Student Loans • $5.2 billion cutbacks in public services over 5 years • Offset by $4 billion in new spending (mostly in health and education) over 5 years

  16. Point 5: So what is in the Budget? • Investment in transport, electricity transmission and ultra-fast broadband • Social infrastructure investment in schools, hospitals, housing and student loans • Funded in part by the partial privatisation of energy SOEs and Air New Zealand

  17. Evaluation of the Budget • It is a cautious budget, fitting firmly within the National Party’s manifesto three years ago. • It represents a shift away from government involvement in favour of private involvement. • It is likely to reinforce growing inequalities in New Zealand’s income distribution. • There is some recognition of the need for investment in social infrastructure.

  18. Point 6: Welfare Reform • I want to finish by talking briefly about an issue that was not mentioned at all in the Budget speech – welfare reform. • The government set up the Welfare Working Group last year, and the Budget’s background papers make one reference to the Group’s recommendations:

  19. Welfare Reform “On 22 February 2011 the Welfare Working Group made 43 recommendations to the Government on options to reduce long-term benefit dependency. Ministers have directed officials to develop advice for consideration. Many of the recommendations would result in large up-front costs if adopted. The Government will respond to the Welfare Working Group’s report later in 2011.”

  20. Motives for Welfare Reform I think it is fair to say that the Welfare Working Group reports were based on two considerations: • Trends in beneficiary numbers were said to be unsustainable. • People ‘choosing’ to be on benefits were said not to understand that paid employment is the way for their family to escape poverty.

  21. Number of Main Benefits

  22. Employment Ratios in the OECD

  23. Welfare Reform • I think the foundations of the Welfare Working Group’s analysis were misconceived. • I am very anxious at how the recommendations will be received by the government. • This is a case, I think, where we need to insist that social security is our response to hard times and not the government’s to throw away.

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