Phil Rennie: Can't buy a caring society

Since 2000 our Government has been on a spending binge that would put the late Sir Robert Muldoon to shame.

Politicians now spend an extra $20 billion a year, which works out to $5000 for each New Zealander. Most of this has gone on social policy, which includes health, education, and social welfare.

This is a dramatic increase, but are we getting dramatic results? Too often politicians boast about the inputs, but what about the outcomes? As taxpayers and citizens, we should be asking these questions.

The results so far are disappointing, according to the key indicators used by the UN, OECD and the Government itself.

The health system has become a black hole for money. An extra $4 billion is being spent annually, but it is hard to find evidence we are any healthier as a nation. Life expectancy and infant mortality rates are largely unchanged, while the output and productivity of public hospitals seem to have fallen.

In education, the achievement rates of our secondary students have only slightly improved. More students qualify for university but the overall literacy levels are about the same.

What about society as a whole? Has this extra social spending actually created a more equal, caring and cohesive society? Once again, the fairest way to measure this is to use the Government's own indicators.

Overall, crime has decreased, which is a sign of a healthy society. But violent crime, and youth crime in particular, has increased. The suicide rate has barely changed.

Poverty and income inequality were earmarked as priorities for the new Government in 2000, but again little has changed. Last year the Ministry of Social Development released The Social Report 2006, which showed a slight increase in the gap between rich and poor, and that the incidence of "severe" and "significant" hardship has also increased.

Overall, this is a depressing scorecard. After spending an extra $20 billion we would expect to find better results than this. So why has this investment had such a minimal impact? I argue that the size of government in New Zealand has grown so large that it has reached the natural limits of its effectiveness.

Government spending is now so high (40 per cent of GDP) that it is crowding out private spending. In effect, a lot of it isn't "new" spending; it is replacing spending that people would have done for themselves, and more effectively.

This is especially true when we consider how much spending is recycled, or "churned" straight back to the people who paid the tax in the first place. Around half of all health and education spending goes to middle and upper-class households, straight back to the people who paid the tax.

The most obvious example of churning is Working for Families, which turns even wealthy families into beneficiaries. Some families earning up to $100,000, many of whom are also paying the top rate of personal tax, are now eligible for tax credits.

This giant merry-go-round of money does nothing to help the poor, is wasteful, ineffective, and means we pay more tax than we need to. Despite their best efforts, politicians will never understand people's needs better than people themselves.

Australia provides a good example of how people can be encouraged to support themselves. Their Government actively encourages private health, education and superannuation. As a result, they pay less tax than New Zealand and outperform us on a range of social indicators, including life expectancy, infant mortality, income inequality and suicide rates.

We need to acknowledge that throwing taxpayers' money at social problems hasn't worked. We can't "buy" our way to a more caring society; we have to look at more creative solutions. And importantly, we should stop spending so much money on people who could easily support themselves - if only their taxes weren't so high.

* Phil Rennie is a Policy Analyst at the Centre for Independent Studies. His paper "New Zealand's Spending Binge" was released last week at

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