What should the Government spend our money on?
University of Canterbury Economist Stephen Hickson delves into the Budget and government spending decisions.
It’s budget time and the usual scramble for a share of the pie is going on. In these somewhat unusual times, it is still important to make sure that the Government spends the money it takes in taxes as well as it can.
Because everything has benefits, what has to be decided is which things provide the greatest benefit and will be funded, and which will miss out – so we lose those benefits. Economists call this idea opportunity cost. The cost of something is what you gave up. For example, increasing public health funding will mean something or someone else gets less. That’s how it works.
One choice the government has is to take less in taxes from the population of New Zealand, which means individuals, rather than the government get to choose what that money is spent on. People often disagree on what level of tax is “right and fair” – we get a say in that every three years at an election – but the level of tax take is a government choice.
Another choice is whether to spend money now or later. Similar to the way households face the choice between spending now or paying a little more off the mortgage and being able to spend later so does the government. Therefore another choice is debt repayment or, if there is a deficit, less debt. Debt taken on now will have to be repaid by future taxpayers. Reasonable people will also disagree on what level of debt is OK.
At some point the government will decide on both, taxes it will collect and a comfortable level of debt – then the task is what gets funded.