Friday, 29 August 2014

Don't put the safety net on the credit card

New Zealanders - or maybe just the males of the species - are stoic folk. An eye isn't working too well on Tuesday? She'll be right. Wednesday - hmm, worse, never mind, mustn't grumble. Thursday - can't really use that eye, bit of a nuisance, that. Until finally pain and dysfunction drive us into seeking help.

So I'm hugely grateful to all the professional folks at Green Lane Hospital who, when I at last fronted up, reattached a retina, solved some later complications, and sent me back out with two good eyes and only slightly pained reactions to my 'will I ever play the violin again' half-witticisms.

You'll hear people saying there's a crisis in our health system: I didn't see it.  Yes, the emergency eye unit is very busy, especially, I gather, on a Friday, when people like me finally give in after trying to struggle through the work week. But the throughput is pretty heavy 24/7: you'd be surprised how many people have eye injuries. Even so, the place copes well, gets the delicate surgery done, and all with friendly staff in a modern facility.

Even if I hadn't just been a recent beneficiary, you wouldn't have found me bad-mouthing the safety nets of a modern welfare state. As Thomas Piketty says (p481) in his Capital: "Modern redistribution, as exemplified by the social states constructed by the wealthy countries in the twentieth century, is based on a set of fundamental social rights: to education, health, and retirement. Whatever limitations and challenges these systems of taxation and social spending face today, they nevertheless marked an immense step forward in historical terms", and I wholeheartedly agree.

Which (and if this seems like a swerve, bear with me) is why it's good to see National, Labour and the Greens all committing - albeit with varying degrees of credibility - to running fiscal surpluses in years to come (I don't know about NZ First, having been unable to find anything in the policies on its website about its stance on fiscal surpluses or deficits, and I haven't bothered with any of the others).
Because if there's one single thing that most threatens to undermine the foundations of a modern welfare state, with its provision of of educational opportunity and health and income support safety nets, it's fiscal indiscipline - letting the welfare state blow out to an unaffordable,unmanageable, ineffective leviathan, or (even if it's kept to a fit for purpose size) not raising the money from taxpayers to fund it.

Ironically, Piketty's France is a fine example of what not to do.

First, the French let the size of the welfare state get out of hand. Government spending was an already fairly sizeable 46% of the economy in 1980: it's 57% now.

And second, they never paid for it. Not once, since 1980, did the French run a balanced budget, and on occasions it got very unbalanced indeed: in the first half of the 1990s, deficits were running around 5% of GDP a year.

What happens if you expand the welfare state over 35 years, but never once pay for all of it?

Your debts explode.

Back in 1985 (the first year that I've got IMF data for both France and New Zealand), we were just emerging from the wreckage of Muldoon's economy, and our gross government debt was an unpleasantly high 67% of GDP. France by contrast was in quite good shape, with government debt less than half our level, at 31% of GDP.

But fast forward to 2014, and three decades of not paying their way have blown French debt out to a worrying 96% of GDP. We, on the other hand, got our act together. We ran surpluses pretty much all the way from 1993/94 to the GFC. As a result, our debt (even after the impact of the Christchurch earthquakes) is down to 33% of GDP. Relative to GDP, French debt has trebled: ours has halved.
And it's not even as if the French got a whole lot of obvious extra value for the immense sums they put on the credit card. Life expectancy is a bit better than ours (83 to our 81), but then we don't drink enough Côtes du Rhône. On a lot of other social measures, though, we're at least as good. The latest (March quarter) French youth unemployment rate was 22.9% (and it's been over 25%, in late 2012): ours for the same quarter was 13.1%.

Because they didn't have the political honesty or courage to raise the money to pay for the benefits, the French have now painted themselves into a dead end: something has to give. We, on the other hand, still have lots of options to cope with whatever the global economy sends us next, and we don't have any issues about the sustainability of our safety nets.

I wouldn't rule out backsliding and apostasy later on, but for now it's encouraging that all our major parties plan to stay on a responsible fiscal track.

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