The spending blowouts

A great graph from Eric Crampton and Bryce Wilkinson:

So the light blue line is the situation just before the 2017 election. Spending at 27% of GDP and forecast to stay between 26% and 28% until 2031. Labour and Greens promised to keep spending to under 30% of GDP.

Then came Grant Robertson’s well being budget. It saw spending rising to 29% of GDP and forecast to be between 28% and 29% until 2033. This is the reasonable sort of difference you might expect – a centre left government spend 1% to 2% more of GDP than a CR government.

Then Covid-19 hit. Spending rose to 33% of GDP, which was justified as a temporary measure with wage subsidies etc. But two years later it is at 34% of GDP, rather than back down to say 30%. This is where the Government just threw money at anything that moved.

The 2023 PREFU forecast spending still being 31.5% of GDP this year.

The 2024 Budget shows spending just 0.6% lower than PREFU for 2025. This is mainly because GDP is now forecast to be much lower. We won’t get back under 30% until 2027 (if fiscal discipline holds). So the only real way to fund extra spending will be findings savings elsewhere, or having the economy grow faster than projected. It won’t be until 2031 that we are at the level Grant Robertson projected in 2019.