Jul 11, 2008

Attack, Attack, Attack

That is what Nixon would do. And so does the current Government

The Government says a report accusing it of spending on non-productive areas is lightweight and shows a lack of understanding of what departments do.
Associate Finance Minister Trevor Mallard yesterday responded to the study led by ANZ chief economist Cameron Bagrie.
The study examined the spending mix - how much was spent on front-line activities, such as welfare benefits, health and education services and police, rather than on "back office" (departmental outputs).
"What we find is that back-office [departmental] expenses have exceeded our definition of front-line spending, resulting in an upward trend."
Growth in departmental outputs has averaged close to 7 per cent a year since 1997 while front-line spending increased by 5 per cent.
Nominal GDP growth within the economy averaged 5.5 per cent. Government spending as a proportion of GDP has fallen from 42 per cent in 1995 to 39 per cent in 2001 and risen back to the OECD average of 40 per cent in 1997.

Mr Bagrie said if the back-office ratio had remained in line with front-line spending then there would have been an extra $1 billion free for other activities and a cumulative saving since 1997 of $3 billion. Mr Mallard disputed the findings.
"The economist's analysis is unfortunately very lightweight and shows a lack of understanding of what departments' budgets actually pay for," Mr Mallard said.

No doubt Helen will be pleased with Trevor's staunch attack.

It also interests us that about six months ago at a Treasury forum on productivity we advised a visiting academic that Government spending as a proportion of GDP was now approaching 40%. Brian Easton said that this was rubbish and that we seek the advice of a "real economist". We chose to turn the other cheek on that occasion. But maybe Brian would like to take the issue up with Cameron this time. Maybe Easton is advising Mallard.