$1 in 3 wastefullly spent by govt

September 19, 2018

The New Zealand Initiative’s Fit for Purpose? Are Kiwis getting the government they pay for? shows we’re not getting value for money.

Dr Bryce Wilkinson explains:

Taxes in New Zealand have risen four times faster than incomes in the 20th century. Taxes now take more of our income than in almost any country outside Europe. We have become a high tax country.

We, the public, need the government to spend our tax money well.

Government is a dominant provider of many activities, including health and education. Poor performance here would harm current and future New Zealanders.

Government also dictates much resource use through ownership and regulation. It is a major landowner, and there are 50 times more Parliamentary Acts now than in 1908.

It should aim to get the best possible outcomes for New Zealanders from its assets. It should also regulate wisely and administer those regulations well.

The report’s focus on value for money is not ideological. Who would not want to see government doing the best possible job for New Zealanders?

This shouldn’t be ideological or partisan, but the left does too often mistakenly equate more spending with better spending.

How well is government spending our tax money?
The quality of much government spending is poor. The Productivity Commission’s inquiry into public sector productivity showed why. Public sector agencies are not focused on productivity. Measures are too often lacking or neglected.

A 2013 report published by a Canadian think tank, the Fraser Institute, assessed outcomes compared to spending in 192 countries. South Korea came out on top. Its government was spending 27% of GDP to achieve a performance score of 7.5. In New Zealand, government was spending 38% of GDP for a score of 5.5.

Perhaps, one-third of New Zealand government spending is wasteful. That represents around 13% of GDP, or $20,000 per household, annually.

Every cent not wasted is a cent more to spend on something we need, or to leave in taxpayers’ pockets.

Imagine the positive impact of that money being spent where it has a positive impact instead of being wasted and/or of each household keeping more of what they earn.

A 2009 OECD report similarly assessed spending efficiency in school education. The indicated level of waste in New Zealand spending on education was one dollar in six.

Less waste would mean more money to improve outcomes. Currently, around 17% of 15-year-olds can barely read. The government has likely spent more than $130,000 on each of their schooling. Few would regard this as an acceptable outcome.

Nearly a fifth of children getting through school unable to read and write is appalling. There will be many reasons for this failure and wasting a sixth of the budget will be one of them.

That extra dollar in six spent well could improve pay and conditions for teachers and support staff, provide extra help for pupils who need it and/or do away with at least some activity fees and fundraising.

In health, even official reports acknowledge a lack of focus on productivity. The OECD has also assessed the efficiency of health spending across member countries. A 2010 report indicated that New Zealand could spend 2.5% of GDP less a year for similar outcomes. Of the order of one dollar spent in four looks like waste.

One dollar in four wasted – that’s 25% of health spending that’s not getting spent where it should be.

Such findings from international comparisons are only motivational. They do not show what New Zealand would need to change or whether such changes are plausible. Their value is in inviting us to learn from countries that seem to be doing better.

In some cases, government providers would be more focused on productivity if users had more choice of providers. Government providers can fail to give value for money when users are captive. Users will be more empowered if they have a wide choice of providers and if state funding follows them. The funding of pre-school education has this feature.

Choice tends to improve competitiveness and performance but this government isn’t keen on it.

How well is the government doing as a regulator?
The Crown’s performance as a lawmaker and regulator is flawed. There is widespread dissatisfaction among regulators with the quality of the law they have to administer. The statute book has become too prescriptive and too detailed. Parliament cannot hope to keep it up to date and fit for purpose.

It needs to be easier for lawmakers to resist the pressures to legislate poorly. Greater reliance on simpler laws of a more general nature is desirable. Prescriptive law quickly becomes out of date. Change is unlikely as matters stand.

Bad law leads to added costs and unexpected consequences.

What about our high international rankings?
Many international agencies assess countries’ outcomes for aspects of wellbeing and economic performance. New Zealand enjoys top-tier world rankings in many of these measures.

Does this mean government is doing a great job? Yes, and no.

We rank among the best for many but not all aspects. The report identifies 20–30 government-dominated areas of weakness. Some are no surprise. These include overseas investment and aspects of labour market laws. Infrastructure quality is another weakness.

Labour law changes on the table now are going to make matters worse and the redirecting of fuel taxes from roads to public transport and cycleways will too.

More surprising is the weakness in our legal system. We rank poorly in the ease of enforcing contracts and resolving insolvency and the quality of judicial processes.

There is no excuse for our 54th ranking by the World Bank for the quality of our judicial processes. Gallingly, Australia is ranked first.

The bottom line is there is compelling evidence of much government waste. It is occurring for many reasons, but a major symptom is a lack of focus on efficiency.

Were the state to do a better job, it could use the savings to raise wellbeing by:
• maintaining government outputs, while cutting tax revenues; and/or
• increasing government outputs from unchanged government spending.

Those options are outside the scope of this report. The first task is to achieve the savings.

National managed to get some improvement in some areas during the GFC – requiring the public service to do more with less.

Under Bill English’s social investment regime the government focused on treating causes, acknowledging that sometimes you have to spend more in the short term to get savings later.

It also set measurable targets and reported on progress towards them.

But all parties need to focus on getting better value for taxpayers’ dollars.

It would help if all of them acknowledged that the government isn’t always the bet option for providing services; that governments aren’t good at picking winners and that the quality of their spend is far more important than the quantity.

It would also help if more of us didn’t think of the government as the first or only source of support.


Government’s don’t have magic money tree

September 10, 2018

The Taxpayers’ Union correctly points out that doling out public money will destroy jobs not create them:

Shane Jones’ spending in Kawakawa will destroy jobs, not create them, says the New Zealand Taxpayers’ Union.

Taxpayers’ Union spokesman Louis Houlbrooke says, “Taxpayers might think that $2.4 million for three jobs is a bad deal. Actually, it’s far worse than that. Taking this much money out of the private sector destroys jobs. It’s $2.4 million fewer dollars that taxpayers could have spent in their communities.”

That’s money that individuals could have used to create, expand or support businesses; provide for their futures, give to charity or simply choose to spend as they wished.

“What’s most terrifying about the Provincial Growth Fund is that, so far, Shane Jones has only spent four percent of his $3 billion. There is so much more spending to come that the public risks becoming desensitised to Shane Jones’ flagrant waste, when we should be outraged.”

“It looks like Shane Jones actually has far more money in the Provincial Growth Fund than he knows what to do with. In that case, he needs to simply give the money back.”

Councils and businesses in the provinces are doing their best to come up with ideas to get their share of this money and they can’t be blamed for that.

If money is being given away, why wouldn’t they try to get some for their pet projects?

But government’s don’t have a magic money tree. Every dollar a government spends comes from taxpayers.

The $2.4 million being splurged on the Kawakawa cultural centre in Northland will create just three jobs.

It could have been spent on health, education, crime prevention, infrastructure or any number of other ways that would give better value for money and a better return on investment.

It could also have been left in the pay packets of the people who earned it.


When tax goes too far

August 4, 2018

The theory of higher taxes to discourage and lower taxes to encourage is a good one.

Thus higher taxes on consumption and lower taxes on income and investments are generally to be encouraged.

However, taxing the bad can go too far and it has with tobacco.

I am anti smoking to a point just short of bigotry and don’t have a problem with taxing tobacco per se.

Price increases do generally push some smokers to quit and act as a disincentive to starting which is positive.

But tobacco tax has got so high it’s incentivising crime. That doesn’t justify the thefts but the benefits of the higher price are being outweighed by the rewards of the black market and the dangers which come from that.

The campaign for a smoke-free country needs to come up with another strategy than yet another tax increase.

More help for those who want to give up including easing restrictions on vaping would be a good start.

It should also take another tack by making smoking even more difficult.

It’s already not permitted in enclosed public spaces. That could be extended to outdoor venues such as pavement cafes, parks  and beaches.

It doesn’t have to look like Nanny-statism. It could be done not to persecute smokers but simply to safeguard the right to clean air and water for the rest of us.

Environmentalists are rightly concerned about the problems of air pollution and plastic in oceans, surely cigarette smoke in the air we breathe and butts that end up in lakes, rivers and the sea are at least as much a problem.

The government won’t be altogether keen on holding or reducing the tax because the it generates a lot more revenue than smokers cost in smoking-related health problems.

But if it is really serious about the smoke-free target it has to look beyond higher taxes.


Poor pay less and more

June 29, 2018

Transport Minister Phil Twyford says the poor will pay less fuel tax than wealthier people.

He’s right in dollar terms but if he’s worried about the impact that’s not what matters, it’s the proportion of income that counts:

“Transport Minister Phil Twyford is either very brave or very stupid in arguing that fuel taxes are easiest on the poor,” says Taxpayers’ Union spokesman Louis Houlbrooke.
 
“He is doggedly focusing on the dollar impact of the fuel tax, and ignoring the cost as a proportion of total income.”
 
“It’s no surprise that rich people buy more fuel – they buy more of everything. But people on low incomes spend a far larger proportion of their income on fuel, meaning a tax hike will have a far bigger effect on their real quality of life.”
 
“It only takes five minutes to graph Twyford’s figures and see the real impact of fuel tax.”

“The verdict is clear: fuel taxes whack the poorest almost four times as hard as they whack the richest.”
 
“It’s stunning to see such selective ignorance from a centre-left Minister who is meant to understand issues of fairness and equality. Isn’t this stuff Labour Party 101?”

As David Farrar points out, the poor consume less of almost everything (except tobacco) but spend a higher proportion of their income on it

The cost of the fuel tax will be greater for higher income people but the poor will pay more of what they earn on it:

Now let’s look at the average incomes for each decile

  • Decile 1 – under $23,900
  • Decile 5 – $64,400 to $80,199
  • Decile 10 – over $188,900

So the extra fuel tax as a percentage of income is:

  • Decile 1: 0.52%
  • Decile 5: 0.27%
  • Decile 10: 0.14%

Let’s not forget it’s not just the direct cost that will hit the poorest hardest.

Every service and all goods with a transport component (and can you think of anything that doesn’t have one?) will be impacted by the tax and that will, sooner or later, lead to price increases, inflationary pressure and interest rate rises.

The Ardern/Peters/Shaw/Davidson coalition government, all parties in which purport to represent and work for the poor, is adding to the cost of living and making life harder for them.

And adding to that is yesterday’s announcement we’ll all be paying an extra 10.5 cents a litre over the next two years in excise tax.

P.S.

Michael Redell writes on regressivity, petrol taxes, and ministerial PR at Croaking Cassandra.

Thomas Lumley examines the issue at Stats Chat.

Sam Warburton tweets on it here.

 


Peak tax

June 25, 2018

Last time I bought petrol it was nearly $2.30 a litre – ho much of that was tax?


Public servants paid too well?

June 21, 2018

The Taxpayers’ Union has some facts to dampen public sector wage claims:

Over the last 25 years, public sector incomes have grown much faster than the private sector, while public sector employees also enjoy a higher rate of sick leave costing taxpayers $173 million, according to Public Sector Wage Gap: The taxpayer-funded premium for working for the government, a new report we’ve released today.

If you work for the Government, you earn a third more on average, with taxpayers footing the bill.

This report seriously undermines the public sector unions’ claim for 9-15 percent pay hikes for their members. It blows to bits claims the last Government did not pay bureaucrats enough.

The public sector pay gap nearly doubled since the 1990s. If anything, a wage freeze, not hikes, would be fairer.

Left wing activists and unions would have the public believe that the public sector has undergone nine years of neoliberal hell. But this shows that to be a lie.

Public servants generally have better job security than those in the private sector.

They are also supposed to have a commitment to public service.

Both these factors ought to be reflected in lower pay rates than in the private sector.

Key findings of the report:

  • The gap in weekly earnings between the public and private sectors has grown since 1990, from 18.9% of private sector earnings to 34.6% in 2017. The gap peaked in 2010 at 38.4%. The premium is even higher for hourly earnings (as public sector employees, on average, work fewer hours).
  • If the Government had retained a public sector earnings premium of 20%, taxpayers would save $2.5 billion per year, or $1,445 per household in lower taxes or reduced Government debt.
  • The public sector took an average of 8.6 and 8.4 days of sick leave in 2016 and 2017, compared to the private sector average of 4.7 days per year.
  • If the public sector reduced its rates of sick leave to private sector levels, the taxpayers would save $173 million per year, or approximately $100 per household per year in lower taxes, or reduced Government debt.

Is there something in the public sector that causes more sickness, are public servants less healthy than those in the private sector or is there another explanation?

The Taxpayers’ Union recommends:

  • The Government should set a goal of returning to a 20% public sector earnings premium by placing constraints on public sector wage growth and focusing on growing productivity.
  • If private sectors stagnate or decline (such as in a recession) the Government should be willing to cut public sector wages to match.

The public service is in competition for staff with the private sector.

If it wants high calibre staff it needs to pay them well but this report suggests it’s paying too well.


11.5c + 3-4c = more poverty

June 1, 2018

Petrol was $2.22 a litre when I filled up my car yesterday.

That’s expensive and it’s going to get worse:

Aucklanders will be hit with a 11.5c a litre rise as soon the regional fuel tax comes into effect on July 1, with petrol companies saying they will be passing the full increase on.

And there will be more pain when prices rise by as much as 4c a litre again on October 1 if the first round of three national fuel excise increases is implemented following a policy statement announcement at the end of June.

The Government has indicated the increase will be 3-4c every year for three years. . . 

A tax of 11.5 cents now and 3-4 cents in a few weeks will add up to more poverty.

Aucklanders might face the highest price increase but it will affect all of us one way or another because at least some of the price rise will spread throughout the country.

Every trip everyone makes in a petrol-fueled vehicle will cost more and so too will every trip everything everyone buys, and everything that goes into everything everyone buys.

The price rise might encourage some to forgo private transport for public, but public transport doesn’t serve everyone in cities and there are no passenger trains and local buses outside cities and you can’t put goods and services on trains and buses.

The price rises will fuel inflation which will put pressure on interest rates which will put more pressure on prices which will further fuel inflation . . .

And who will be hardest hit by that?

It’s always the poorest.

Auckland needs better roads but had mayor Phil Goff kept to his promise of finding 3-6 percent efficiencies across the Council budget, this tax would not be needed.

For the sake of us all, Aucklanders must come up with a viable alternative who could beat the incumbent at next year’s election to save us from another three years of tax and spend.


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