A Budget for our Times

Gareth MorganEconomics, Tax and Welfare

It was a nothing budget and that’s precisely what’s needed – at least insofar as government spend, revenue and balance is concerned. If taxes had been raised significantly then austerity  would have risked a recession; if spending had been ramped then a credit downgrade based on the high debt the private sector already owes foreigners, would have stymied recovery. And then there’s Christchurch – the people that are really paying the price for the lack of manoeuvrability the government finds itself with. The delayed rebuild of Christchurch is an enormous price for those citizens to be paying, coming as it does on top of the ongoing mental anguish, and the conundrum their property market faces.

I remember when Roger Douglas reigned. He said he was determined to make the annual government Budget a non-event, to give those lining up for more hand-outs no expectations, and to maintain such a simple, neutral and fair taxation regime that who would want to tinker. The Bill English non-event fitted that mould.

This is not to say by any means there is nothing to do, far from it. But the work should be ongoing, not centred around an annual bunfight on Budget day as is the wont of politicians and media seeking headlines. I’ve mentioned Christchurch – a job in abeyance, but there is also a rebuild of the taxation regime to make it fair and efficient, as well as an overhaul of the benefits regime so that dignity is underwritten by the State, poverty traps are avoided, and social targeting or engineering is brought to an end. And the central bank is as slow as a wet week in getting its prudential supervision up to speed so we avoid a repeat of the distorted credit markets that led to the great Financial Crisis from which we have yet to recover.

On my Facebook page the other week I asked “what should the government be doing to create jobs?” It was a bit of a loaded question because the government is unlikely to be able to directly create sustainable employment, but can do an awful lot to facilitate job creation in the private sector. The responses were interesting ranging from stopping all imports, to taxpayers spending more on apprenticeships, to making earlier retirement compulsory, subsidising wages, work schemes, and so on.

Almost all of the answers tended to be focused on symptoms or direct creation of work, rather than acknowledging some basics. By far most of the jobs are created by small businesses delivering products to meet people’s desires. We have some strategically important businesses in the export sector that relieve our reliance on overseas capital for investment in business, profits, wages and jobs. But they’re only important insofar as the local supply of capital is somehow not available – or so busy speculating on property that real business is starved.

The bottom line is we need to produce stuff the world wants and at prices they’re prepared to pay. Government can only help insofar that it doesn’t stuff up the delivery of its public goods and services (health, education, law and order), ensures its regulators smash monopoly pricing practices and similar market distortions, and keeps its own administrative functions efficient. The rest is up to us.

Now we can’t all line up to get jobs from others – we have to have ‘others’ to create jobs – those are the risk-takers, the entrepreneurs. What do they need to get going? An innovative and opportunistic streak, access to finance, an appetite for risk and preparedness to risk their own wealth, and energy to execute their business plans. These people are critical, and a society that encourages entrepreneurship and self-reliance will reap rewards from they’re blossoming. They will employ the rest of us.

It’s not hard to see that in the main it’s up to us – not up to taxpayers and politicians. The State sector can provide the environment but we do the business. So why aren’t we? What are the impediments to entrepreneurship? It must be someone else’s fault – let’s see what you think.

A Budget for our Times was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.