The 1991 Benefit Cuts

The left often go on about the 1991 cuts to some benefits as the great evil of the 1990s, without ever putting them into context (of course) or noting they have never ever reversed them despite record surpluses. If you only read from the left you would think that National did them because it hated poor people (which is what they want people to think).

First of all, it is important to note that Labour did not campaign in 1993, 1996 or 1999 on reversing them. Sure they whined non stop about them, but never did they promise to reverse them. Why not? Because they knew they couldn’t be afforded and also the would destroy the gap between low paid jobs and being on a benefit. And despite being in office for seven years with record surpluses, they still have not even once increased the base level of a benefit beyond that required by inflation.

Now let’s look at why some benefits were cut in 1990. The main reason is because Labour left the country almost bankrupt. The accounts were done then on a cash basis and money from asset sales was hiding the fact that there was a large operating deficit.

How large? Before the 1990 election we were told there was a surplus. In fact the new Govt found out that there was a deficit projected to be $5 billion. And this was back in 1990 when that was a whopping 19% of total crown income (then only $26b). So we were set to overspend by around 20%.

Now on top of that we had a crippling level of public debt. How much? A whopping 44 billion which represented 169% of total crown income.

And what did that debt cost to service? In 1991 it was a huge $4.6b. By comparison health expenditure was under $4 billion. Yes we spent more on debt than we did on health. Thanks to those 1991 cuts this is no longer the case.

And worse it was a vicious circle. Run a $5 billion deficit and that is $5 billion more debt which at the 15% interest rates of the time was $750 million more interest annually so even if nothing else changed the deficit grows by $750 million so next year it is almost $6 billion.

So in 1991 we had a deficit of 20% of crown income, a debt of massive proportions, 15% interest rates which meant servicing on the debt cost more than either health or education votes and this all looking just to get worse in a vicious circle.

Obviously there was a huge fiscal need to cut the deficit and debt. Anyone who denies that is lying. And that is why so many areas had expenditure cuts. Because if they had not been cut in 1991, they would have been cut not many years later when we couldn’t pay the interest on the debt.

The incoming National Government had this dire situation hidden from it. They took the tough calls in order to save the country. The situation now is vastly different from 1990. We have structural surpluses and almost no debt. We have them to thank for that.