Crown Expenditure

No Right Turn disagrees with John Key that the Government has massively expanded government spending since 1999 and claims that core crown expenditure has decreased from 35.1% of GDP to 30.6% of GDP and hence no massive increase.

Now this is an excellent case of using the wrong statistic. You see John Key was talking about the role of government expenditure in fuelling inflation and a comparison to GDP is almost meaningless in that context.

In fact the entire notion that if the economy grows by 5% then the Government should be inventing new things to spend money on to keep its percentage up is bizarre. During times of good economic growth one will in fact have considerably less core expenditure as there are less people on welfare. Hence the increases we have seen are all the more remarkable.

Government expenditure as a percentage of GDP is a useful statistic for overseas comparisons, but using it to argue that expenditure is not increasing is silly. One will find that almost every country in the developed world has its expenditure as a percentage of GDP decreasing during times of economic growth. In fact if your crown expenditure does increase faster than your economy as a whole you are heading into trouble.

Now let’s look at crown expenditure from 2000 (the last financial year of a National budget) to 2005 and beyond.

In 2000 total government expenditure (incl SOEs) was $40.1b and in just five years it is 50% higher at $60.9b. This is an increase even as a % of GDP from 36.5% to 40.3%. And it is projected to keep increasing. So the state is growing as a proportion of the economy.

Now even if one takes only core crown expenditure then in 2000 it was $34.5b and in 2005 it was $46.2b. This year it is budgeted to be $50.7b. Now yes as a % of GDP it has shrunk from 31.4% of GDP to 30.6% but see comments above about the inappropriateness of this measure when talking about effects in inflation. Also even if one persists with that measure well by 2008 it is projected to be back up to 32.6%.

Talking of inflation, even adjusting into real 2005 dollars, we have seen core expenditure increase by $7.2 billion beyond inflation in just five years.

Going back to the argument that somehow crown expenditure should increase to keep pace with GDP. Well I’d then ask NRT if that means it should be cut if there is a recession, and if so does that mean he agrees it was right to cut benefits in 1991?

All historical figures quoted above come from an old parliamentary library spreadsheet which tracks crown expenditure. 2005 figures from Treasury.