Government spending soared as New Zealand charted a path through the worst of the Covid pandemic.
With the bill for that spending now falling due, there is a clear message from New Zealand’s business leaders; four out of five (78 per cent) say they want the incoming government to make major spending cuts.
One in 10 disagrees while another 12 per cent are uncertain.
“While the debt level is not alarming by international levels, the situation will continue to worsen as we continue to live beyond our means,” says a former banker, neatly summing up the consensus view of New Zealand’s boardrooms as we head into an election where government spending is under the microscope.
Kiwibank CEO Steve Jurkovich wants the next government to “drive higher returns from a reduced spend”. A third banker says: “the incoming government needs to take a critical look at the 40 per cent spending increase in recent years and ask what is being delivered for it”.
Another banker says more fiscal prudence is required.
We asked survey respondents to nominate areas for spending cuts. Many of those who commented focused on the Government payroll.
Mainfreight director Don Braid speaks for many when he says: “Reduce the bureaucracy and as a consequence the cost of government across the nation”.
Harcourts managing director Bryan Thomson wants spending on support staff refocused on front-line services.
He says: “The new government needs to address spending and remove it from back office to focus on frontline such as health, education, police and social support.
“Remove the middle managers and PR comms people and replace them with people who actually do something in the field.”
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Government spending on consultants is also in the bosses’ sights. David Mair, CEO of Skellerup Holdings, nominates cutting “Government spending on consultants to do Think Big projects”.
Kevin John Obern, the managing director of OfficeMax, wants both the general central government and the spending on consultants curtailed.
A company director suggests downsizing ministries. “They are over-resourced with staff busy getting in the way of getting things done at the coal face and with limited experience in policy and strategy”, while a company chair says: “Government fulltime employment needs to be shrunk across the board.
“You do this through setting a cap for investment and relentless prioritisation of that spend.”
Matthew Cockram, CEO of Cooper and Company singled out specific areas for cuts: “Communications, Ministry of Education, Ministry of Business Innovation and Employment (MBIE) Job Seeker scam.”
Cameron Bagrie of Bagrie Economics has a more nuanced view of spending cuts: “Develop an economic plan and chart a fiscal course.
“We do not need extreme movements in fiscal policy settings. Fiscal policy should not be slavishly dictated by fiscal targets.
“Yes, we need some discipline around them, but we also have extensive social and infrastructure deficits to address.”
A senior banker warns: “While extensive cuts could be damaging, a plan to reduce costs over time is necessary.”
The Mood of the Boardroom survey was in the field when Treasury released the 2023 Pre-election Economic and Fiscal Update or Prefu.
There had been widespread understanding within the commercial community that this would project significantly lower tax revenue and an increase in government debt.
In the event, the numbers were better than expected with the core tax revenue coming in at $121.6 billion compared with a budget forecast of $123.2b.
Government borrowing for the next four years is set to increase by $9b, which is high, but forecasts before the announcement were in the $10b to $15b range.
Respondents were split three to one between those who were more concerned about the Prefu update than in the past and those with a similar level of concern.
None said they had a reduced level of concern.
One investment banker commented: “This government has greatly increased debt and has steadily dismantled the economy that is meant to pay for it.”
The boss of an energy company says we have borrowed too much, and the invoice is arriving.
Managing Director of Cordis Hotels Franz Mascarenhas says: “Ultimately this will become a burden on the common man in the years ahead.”
Bagrie adds: “The tax in the tax take has been a key economic development. It illustrates that you cannot divorce ideology from economic reality. Inflation is equally brutal for businesses as it is for households.”
Bosses are unimpressed by the Labour government’s announcement in late August that it would cut spending by almost $4 billion on top of the $4b in cuts announced in the May Budget.
Finance Minister Grant Robertson made it clear that would include reduced spending on contractors and consultants.
When asked if a future Labour-led government would manage the debt track 82 per cent said no. Only 7 per cent said yes.
Many leaders commented on the relatively small size of Labour’s projected cuts. An energy sector boss notes that while government spending has grown by around 36 per cent, $4 billion in cuts is a small start.
An agribusiness director says: “A token 2 per cent cut across the board. Shows no strategic or operational focus. Knee-jerking ahead of the election.”
Matthew Cockram of Cooper and Company echoed the sentiment saying: “Tokenistic and desperate”.
A logistics boss described the cuts as: “Too little too late”. He says it amounts to a political stunt to impact Prefu.
A media chief used exactly the same words: “Too little too late”.
Other commenters were distrustful of Labour’s record.
Harcourts boss Bryan Thomson says: “The best predictor of future behaviour is past behaviour in the same context”.
An advertising chief: “They have done nothing to manage debt to date so why on earth would anyone believe they will change now? It’s pure politics.”
An investment firm chief is on the same wavelength, saying: “Their record has been abysmal, why will it change?”
The policies are rated on a scale where 1 = ‘very poor’ and 5 = ‘very good’
LABOUR
· Make the apprenticeship boost scheme permanent 3.76/5
· Increase sentences for criminals who use or reward children for committing crime 3.69/5
· Make financial literacy education mandatory and make reading, writing and maths teaching consistent with mandatory Common Practice Model 3.53/5
· 20 hours free early childhood education for ages two plus 3.24/5
· Licence all vape retailers and reduce their number to 600 3.17/5
· New offence to target ram raiding and allow ages 12/13 to be charged in youth court for ram raiding 3.05/5
· Prioritise 14 projects with $20b, plus a boost to road maintenance with a 4c increase to fuel taxes each year from late 2024 2.64/5
· Build two new youth justice facilities 2.95/5
· Four weeks paid parental leave for partners 2.92/5
· Three tunnels across Waitematā harbour with two for vehicles and one for light rail 2.38/5
· Continue with the Three Waters/Affordable Water and RMA replacement programmes 2.04/5
· No change to superannuation age 2.28/5
What they are saying
· A poorly targeted mix of policy prescriptions with no coherent supportive strategy or funding to make sure they are implemented in an effective way. — Agribusiness director
· ”I find it hard to believe the Labour government would make a shift to normalcy in education. Decolonising seems counter to what I would consider common practice model.” — Simon Bennett, Accordant
· It is impossible to be impressed in retrospect or in advance of anything they announce given track record to date — Matthew Cockram, Cooper and Company
· Vapes: great to license them but sadly the horse has bolted — how do you choose which businesses to shut down when they’ve been started in good faith? — Leading banker
NATIONAL
· Infrastructure would be planned for by a new National Infrastructure Agency with a 30-year investment pipeline making use of PPPs, value capture (like road tolling), fast-track consenting 4.19/5
· An automatic six-month temporary visa for qualified overseas nurses and midwives and their family without needing a job 4.14/5
· Require one hour per day on average on each of reading, writing and maths at primary and intermediate schools 4.08/5
· Rewrite the primary-intermediate curriculum, require standardised testing twice a year for Year three to Year eight — 4.02/.5
· A $24.8b spend over 10 years on 13 roads of national significance, public transport projects in Auckland and the lower North Island, and a range of resilience upgrades 3.99/5
· Ringfence $70m a year for Pharmac cancer treatments, paid for by reimposing $5 prescriptions for all but superannuitants and those on low incomes 3.77/5
· FamilyBoost, a $75 a week childcare tax rebate 3.53/5
· Scrap the Three Waters entities within 100 days 3.45/5
· Set up a third medical school at Waikato University 3.38/5
· Allow under-30s to use KiwiSaver to pay for rental bonds 2.5/5
· Allow councils to opt out of the medium-density law 3.24/5
What they are saying
· Transport pricing is the burning platform that needs to be addressed to restore funding security to the national land transport fund. A pothole fund is not fixing the root cause of long-term road user pricing. — Peter Reidy KiwiRail
· Most of these policies address immediate issues but will require more comprehensive and intelligent supporting programmes over time. — Agribusiness director
· Some good proposals but equally daft ones like using Kiwisaver for rent bonds and a third medical school instead of increasing capacity and support for current schools. Just pay nurses more, that bond is window-dressing. — Exporter
· There is no need for a third Medical School, the Auckland and Otago Medical Schools should be expanded instead. — Investment firm chair
Many business leaders rate the Opposition Finance Spokesperson highly.