Over the next few weeks, the news will be filled with stories about this year’s Budget. So what actually is the Budget?
The Budget is the Government’s plan for spending over the next 12 months (though, often budget announcements are for spending over the next 3-4 years). This year, the Budget will be presented to Parliament on May 21.
The 2013 Budget documents Photo: Diego Opatowski/The Wireless
Along with holding the Government to account and making and passing laws, examining and approving spending is one of Parliament’s key functions. Political scientist Professor Stephen Levine says authorising government expenditure is a central function of a legislature in any democratic country – and setting taxation too.
“The Government needs money to run its affairs, but it can only obtain money and then spend money with popular approval,” Professor Levine says. “If we turn this around, if the Government were not so required, then really it leads to a kind of absolute power where the Government can take as much money as it wants, spend it for whatever it wants, and it’s not really accountable.”
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It’s a historic and fundamental principle, he says. “If the legislature doesn’t have some kind of control, then it’s questionable whether you have a democratic system.” That goes back to, like most things in New Zealand’s system, British history, where the head of state (the Crown, or the King or Queen) had absolute power.
In 1215, the Magna Carta set heavy restrictions on the Crown’s ability to impose taxes without Parliament's consent. Restrictions were removed from subsequent versions, though sensible monarchs still got consent before taxing. The Bill of Rights Act 1689 finally made it the law that only Parliament could tax.
That continues in New Zealand – and most Commonwealth countries – today. The Crown can’t levy a tax; borrow money; or spend any public money without Parliament passing a law to approve it. (Incidentally, this year marks 800 years since the Magna Carta; the British library has a great video narrated by Monty Python’s Terry Jones explaining it.)
When people talk about “confidence and supply” – like the National Party has with a number of parties to form its Government – the supply part means money. ‘Confidence’ allows the Government to stay in power. And you can’t really have one without the other in a Westminster system, says Professor Levine.
Bill English delivering the 2014 budget speech. After the Minister of Finance delivers his speech there's a special debate about the Budget.
Our Westminster system isn’t the only system though. In the US, there’s much bigger separation between the legislature (the Senate and the House of Representatives) and the executive (the President.) There, the President can propose a budget, and it doesn’t have to be passed.
“Whereas in this country,” professor Levine says “the Prime Minister and his Government propose a Budget, well it’s going to be approved. If it doesn’t the Government will fall, and we’ll have new elections.”
Before last year’s election, Radio New Zealand’s political editor Brent Edwards wrote “in effect [the Budget] details how much the Government's going to take off you in tax and how much it is going to spend for your benefit on health services, education, the police and other services you and your family and friends use every year.”
This year, the Finance Minister Bill English said last week the upcoming Budget will be the toughest he has had to present. "We [the Government] like inflation ... It means we collect more tax on the $120 billion that's on deposit in New Zealand bank accounts," he said. "It's not happening and it's forcing [the] Government to be honest about its revenue and what it can spend on.
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Nevertheless, over the next three weeks, expect to see a flurry of pre-budget announcements. It’s unlikely there’ll be much of surprise on the day – though the Government usually likes to have one or two big things to announce – a bunch of money going into education or health care for example. And the government has already said it only has a billion dollars for new spending.
Back in the day, it wasn’t unusual for the Budget to be something of a surprise, but now governments try to be more transparent. “When Muldoon gave his Budgets, it was a great spectacle, you actually had trouble getting a seat in the gallery ... When he stood up, he was announcing plans, which in some cases, were not known to anybody.”
Nowadays, governments emphasise stability – something that’s slightly undermined by suddenly announcing huge spending or cuts to services. Recent Ministers of Finance almost pride themselves on giving boring budget speeches, Professor Levine says.
Budget 2014. John Key and Bill English walking towards the debating chamber Photo: Diego Opatowski/The Wireless
That transparency is something that Treasury’s Fiona Ross says we should be thankful for. She’s the Deputy Secretary for Budget & Public Services, which means she’s in charge of the budget process. “I’m responsible for money basically, for Government spending.” She’s pretty important.
The budget that’s presented in Parliament is in two parts – the Government’s books, how much money it has; how much it is spending; what the economy is doing; and what might happen in the next 12 months. “We produce the forecasts on the economic and fiscal environment and that helps the government decide how much money it has to spend each year,” she says.
Treasury coordinates the whole process, which involves all the Government departments bidding for their piece of the pie. That process starts more than a year out, but really starts to get going in September when ministers start setting what they think their priorities are going to be. “There is a lot of competition and people want to put their best bids forward,” Ross says.
Of that $1 billion in new spending, Ross estimates that it’s allocated to the last million. “As you can imagine, we’re really oversubscribed with great ideas on what we should fund. So we do get into quite a lot of detail, because the way that you put the package together means that you might be able to squeeze that little more out.”
The Budget is only a small part of all Government spending – total government spending is about $70 billion. “The billion extra that we have is for new initiatives, new programmes, new demands.” Ross says..
If this is all boring and confusing – and if you’re not an economist or a politics nerd it probably is – spare a thought for the people at Treasury. This year’s budget isn’t even finished yet, and they are already working on the one to be delivered in May 2016.
This content was made for The Wireless with funding from Parliament.
