Magazine article New Zealand Management

ECONOMICS: Public vs Private

Magazine article New Zealand Management

ECONOMICS: Public vs Private

Article excerpt

Byline: Bob Edlin

The fiscal fundamentals of the Government's 2013/14 Budget are simple: tax revenue is forecast to increase slightly while expenses decline, as a share of GDP, over the next four years. The Budget Economic Fiscal Update forecasts show the Government is expected to achieve its fiscal objective of a return to surplus ($75 million) in 2014/15. Tax revenue increases in each year of the forecasts, reflecting the expected growth in the economy. Budget decisions have increased expenses by around $1 billion a year, but coupled with revenue initiatives, the net spending in the Budget reduces to $900 million a year.

Thus the Government is maintaining tight financial constraints on the delivery of public services. The reasoning is that the public sector makes up about a quarter of the country's economy and so makes a large contribution to our economic performance. Increases in productivity and skills in the public sector are expected to benefit the whole economy.

Partial privatisation by selling shares in state energy companies is aimed at improving economic efficiencies too.

Shrinking the size of government in the name of economic efficiency appeals to libertarians, many economists, business people and anyone who bridles at paying taxes. The appeal is rooted in an aversion to amassing public debt and a belief that smaller government is better for economic growth, although some countries with big public sectors do well -- look at China -- and some countries with small public sectors do badly.

Christopher Stone, research director of the Public Service Programme at Australia's Centre for Policy Development, gives further cause to question spending cuts and privatisation in the first two of three discussion papers to be published this year. Some of the research funding (let the record show) comes from the Community and Public Sector Union, the rest from the Becher Foundation, which looks for projects that satisfy its social justice priorities, and Slater & Gordon, a law firm.

The first paper looked at false economies stemming from short term, narrow thinking on Australia's public service. Its main message is that to know whether Aussies are getting public value for public money, they must consider what government does as well as what it costs and to look at results as well as resources. …

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