Discussion Tuesday

Double-barrel question today – make sure to answer them separately, or point out if you are only answering one part.  The answers to both questions are not obvious btw:

In New Zealand, the government is now a larger part of the economy than it was under Muldoon.

In New Zealand, the government should be a larger part of the economy than it was under Muldoon, given the changes in technology and social structure.

Once again, remember that these are points for discussion – I am not saying I agree or disagree with them.

5 replies
  1. Sam Murray
    Sam Murray says:

    A nice easy one. I suspect you would have to do a dissertation, at least, before you could give an informed answer. So here is my uniformed one(s).

    The temptation is just to look at government expenditure as a percentage of GDP, but that could be misleading. It will not tell you the number of government employees as a proportion of the workforce. A large chunk of spending could be contracted out to non-government organisations, and it is now in New Zealand. Government spending could also be dominated by a few large item, such as pensions and saving schemes that do not require large numbers of government employees.

    Government spending also does not tell you directly about the level of regulation and intervention in industries. China, for example, has lower government consumption expenditure than New Zealand, but has, arguably, a higher level of regulation and intervention in industries. There is also a question about development too, countries with lower GDP tend to have lower government expenditure as a percentage of GDP. So the answer is…. lots of different answers depending on how you look at it.

  2. Donal Curtin
    Donal Curtin says:

    (1st question only) Sometimes if it walks like a duck and it looks like a duck….I doubt if govt could be seen as larger on any important dimension. And not just on the obvious criterion (govt spending peaked as share of GDP around 1990-92 and is a good 10% of GDP lower today) but also taking into account deregulation (still only partly rolled back) which saw a large reduction in govt role (eg in incomes bargaining, import licensing, interest rate setting)) and privatisations

    • Matt Nolan
      Matt Nolan says:

      The nominal share of GDP for govt C and I peaked in Dec-2009, and is still just above where it was in the 1990s. None of this is cyclically adjusted of course, but the hole we were in during 1990 was larger than the hole we are in now, or were in in 2009. So government expenditure on this basis is larger.

      Also, we have more active family benefits, tax credits, and those forms of redistributionary packages than we did then – something that does count towards the real “size of government”. Hence why it is best to look at tax burdens.

      For this we can go to Treasury’s long term fiscal series: http://www.treasury.govt.nz/government/data . This is a harder series to compare, as cash revenue doesn’t fit neatly into either total revenue or core crown revenue. On this revenue side the peak was in the early 1990s, but the period with Muldoon still saw lower revenues to NGDP than we saw under the final Labour government. Using this metric, the recession and National party policies have reduced revenue to NGDP – but the LR track is expected to head back to where it was with Muldoon.

      The big difference the other way is the lack of direct intervention, price freezes, and ownership of industry – with the quality of data we can’t really really quantify a lot of what was going on back then. And as you say, it depends on what element we are talking about.

      However, the current size of state is reasonable large – it is just good at marketing it quite differently 😉

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