Shewan on Budgets

John Shewan also talks about best and worst budgets:

One of the last big projects Shewan completed at PWC was to review New Zealand’s last 34 government Budgets.

The best finance ministers included Ruth Richardson, Michael Cullen and Bill English “all in their own way”, during different eras, Shewan said. Cullen, especially, was an “unsung hero” for holding government spending down early in his time as finance minister.

Bill Birch and Winston Peters were treasurers during a “non-reformist period of lost opportunities”.

Shewan said that one of the lessons of history was that, “You have to keep reforms going, otherwise you end up facing bitter medicine in the end.

Australia has managed that – continuous reform.

In the course of clearing up his office earlier this month, Shewan found a government booklet from 1981, from the height of the Muldoon era. There were 45 pages of incredibly generous tax incentives for business.

The bad old days, that some want to return to. They now call the loopholes and incentives “green jobs”.

“Without doubt” Muldoon was the worst finance minister of the past 34 years and did the most damage to the economy.

“But I don’t think he realised. I think he genuinely believed what he did would work,” Shewan said, even though Treasury and others advised against his decisions.

The damage was huge and took a long time to fix.

“I’m sad we haven’t learnt from those mistakes,” Shewan said, given the huge blowout in government spending between 2004 and 2008.

“That will be another era that will be judged extremely harshly when government spending grew 60 per cent. It takes a long time to recover from that,” he said.

In the early 2000s, the Clark government enjoyed huge Budget surpluses. “And in my view Michael Cullen did a good job in keeping a lid on spending between 1999 and 2005,” he said.

But in 2005 the government campaigned to bring in massive spending increases such as interest-free student loans and Working for Families, which led to significant “middle class welfare”.

“Often the worst policies are the ones announced on the hoof during an election campaign with no consultation,” Shewan said.

Interest free student loans are a prime example.

However Shewan gives credit to Cullen.

“Cullen is an unsung hero for being ruthless in stopping fiscal promiscuity in the early period of the Clark administration,” Shewan said.

“He was a clever and talented guy, for whom I had great respect though I crossed swords with him [on some issues].”

Cullen did salt money away in the New Zealand Superannuation Fund, when the Government was running big surpluses. …

Present finance minister Bill English had come in during an extraordinarily challenging period, when the economy was already heading for the rocks, even before the Global Financial Crisis hit, then the GFC did hit, followed by the Christchurch quake.

“He has achieved basically zero growth in government spending – that’s a huge achievement,” Shewan said.

It would be interesting to see his ratings for all the Budgets.