Government spending and revenue: some comparisons

I had to look up this morning where New Zealand ranked among OECD countries in the total share of GDP taken in taxes.   The answer (for 2019) was 11th lowest, or 10th lowest if you (as you should, and as I do in the chart) use the denominator for Ireland (modified GNI) that the Irish authorities use.

taxes 2019

Among the English-speaking countries we often compare ourselves to, New Zealand and Canada are in the middle of the bunch, with the UK and Ireland higher and Australia and the United States lower.  Note that these are “general government” figures, including all levels of government in each country.

What about the spending side of the picture?  This is the chart for current spending across all levels of government.

spending 2019

New Zealand is towards the very bottom of that chart.  It is, however, fair to point out that when you have a low level of public debt you don’t face much an interest expense:  in terms of current purchases or transfers our overall level of current government spending goes a little further relative to most other OECD countries (with higher debts) than it might first look.

The big outlier, of course, if you compare that two charts is the United States, with yawning budget deficits.

What about the changes over time?  These OECD data only go back to 1986 for New Zealand, so I’ve started the chart from then showing (a) New Zealand, (b) the median of all OECD countries, and (c) the median for the OECD countries for which there is complete data from 1986 onwards.

spending time series

The gap between New Zealand current government spending and that in the median OECD country opened up 30 years ago.  In fact, the gap between New Zealand and the consistent-sample grouping (the orange line) has fluctuated around a fairly constant mean since the early 1990s, with no obvious differences based on which of the major parties was leading the government.

Of course, at the start of the period we still had fairly high debt and fairly high interest rates.  But that factor doesn’t look to explain much about comparisons for the last couple of decades.  This chart is of net interest expenditure as a share of GDP.

interest net

And what about changes in taxes (and social security contributions) over time?

taxes over time

On this measure, the gap between New Zealand and the complete-sample group of OECD countries (grey line) has widened further over the last decade or so.  Partly in consequence, whereas for the OECD as a whole (either series) the median country now has a higher tax share of GDP than it had in the late 1980s, we have lower taxes.  Consistent with that, of course, we also have lower current outlays than we had then, but it looks as though much of the difference will be accounted for by (a) in particular, lower (real and nominal) interest rates, and (b) lower debt.

I’m not attempting to draw any strong conclusions, just presenting the numbers.  They aren’t the only numbers that are relevant.  For example, as I understand it, the current disbursements series does not include depreciation, so in some respects it would be better to look at total outlays (in New Zealand, with a fast-growing population, government capital expenditure tends to be quite high).   Similarly the taxes and social security contributions series –  while important in its own right – is not a measure of total government revenue.  And I could track down the gross interest data and subtract that from the current disbursements series to get a consistent series of current primary spending.   Perhaps another day.

For now, I think one can safely say that New Zealand government spending and revenue are below those of the typical OECD country.  That wasn’t always the case, although much of what changed was servicing costs.  Whether that relatively modest size of government (spending and revenue) is a matter for concern or celebration will, I guess, depend on your ideology, your view (implicit or explicit) of various key elasticities, and perhaps your sense –   which should be detachable from ideology –  as to how wisely and well existing spending is being done.  For myself, I think there are areas where our government should probably spend more (health, access to justice, administration of justice, and statistics as just some examples), but I’m not convinced that even taken together they would amount to a strong case for higher taxes (when I think of potential savings –  on NZS, free tertiary education, the PGF as just some high profile examples).

13 thoughts on “Government spending and revenue: some comparisons

  1. Surely tertiary education is and was heavily subsidised and our current govt’s policy of ‘free’ education is only a comparatively small factor in the cost to the nation. What should be queried is its extent. If say half our current tertiary students do not obtain significant benefit then why subsidise it at all? Are tertiary educated builders, nurses and secretaries better than those who used to learn via some form of apprenticeship? Young people aged 18 to 23 are at their most energetic and we are sitting them in lecture theatres – wasting their time and reducing potential income tax revenue.

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  2. I tend to think we have too many people in tertiary education, but evidence so far has been that fees-free has been almost pure transfer to people who would have gone anyway. That particularly sticks in my craw (even as a parent with 3 kids likely to start university in the next five years). More generally, I sympathise with your point.

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    • The amounts involved in giving free 1st year Uni was $300 million. I feel rather guilty when we pay oldies $15 bilion a year of which the increase this year by the Labour government was $3 billion.

      I think $3 billion was needed because they decided to allowed many more Pacific Islands to be part of the NZ Universal Super scheme when they have paid no NZ taxes and we fuss over say $1 billion for a 3 year free Uni program.

      I think we should resume free Uni for all years and not gift $900 million to Winston Peters to gift to the Pacific Islands just to curry favour with them or even the $11 million Jacinda Ardern has just gifted to Fiji while she takes her holiday.

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    • If the govt didn’t subsidise tertiary education then your 3 children would be paying the same fees as foreign students. That applied to my family just after arriving in NZ and it only applied for one child but it was sufficiently expensive for me to suggest she took a gap year (offer refused).
      It is a balance between deterring the able but poor and encouraging everyone to be a student since that is less frightening than actually finding a job. Making the fees inversely proportional to college results and where applicable previous years uni results would be the best way although it could make the parent of three children studying at university more judgemental.

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    • I find fees-free tertiary-education debate confusing – as follows

      Was living in Australia when off-spring of close friends went to University and were subject to Higher Education Contribution Scheme (HECS) fees were applied. Both received Austudy living grants while they were attending University. One had a part-time job and paid the HECS fees as they went and didn’t end up with a debt, the other graduated with a debt. They weren’t required to repay the Austudy grants. Only the HECS fees

      In NZ much of the debt many of the students complain about is made up of both University fees plus student loans

      The question is does the fees-free concession relate to only the university-fees or does it apply to both the fees and the student living-loans

      I know the saga about repaying student loans is about repaying both which I think is a bit steep

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  3. Hi Michael, would you tell me if the government ‘off government book’ borrowing, as we now have with the state housing provider for example,would hit such statistics.

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    • Remember that my charts are only of current (operating) spending, and taxes and social security contribs (ACC wage levies in NZ), whereas that “off-the-books” new debt (is, as I understand it) a) to fund capital expenditure and (b) a stock (debt) rather than current income/spending (flows, in economist jargon). So, no, they won’t be included, but nor should they be (although in principle the interest on that debt should probably be captured in time).

      It is going to be harder to interpret NZ data going forward, esp the debt data. I hope the OECD will make the effort to ensure that the “off-the-books” debt is included – they will have plenty of experience with countries trying to get round fiscal rules – but someone will have to pursue that in future to find out.

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  4. Thank you. I see what you are saying about current/operating spend. I’m not an economist or money/accountancy trained. I see on an annual basis the interest paid, assuming the debt is paid back it would be part of the sum too, would hit that years tally? My mortgage debt isn’t ‘my’ money in real terms. If I was to tell someone what my monetary worth was without saying what my debts were, it wouldn’t really be an honest position of my worth or spending would it? I just don’t agree with the way this is allowed to be hidden, apart from the fact this type of borrowing costs more in the long run. It’s simply to hide it from a voter such as myself. To me, perhaps it’s ignorance, it’s like running two sets of accounts,like a dodgy shop keeper😋

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  5. Headings Second and Third charts are a bit ambiguous

    I’m old school – Do these represent OPEX as distinct from CAPEX

    If OPEX only it would be helpful to also see a CAPEX chart

    I have never thought of ACC as social security revenue

    An additional chart showing NZ revenue componentry of Income Taxes v GST v Excise, v ACC

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      • Our government health sector certainly treats ACC as a third party client. When my mum was in hospital for some minor correction surgery she was told she had to be discharged from the hospital by 10am the following morning. When we informed them she was an ACC patient they apologized and gave her another 2 weeks stay in the hospital as a precaution.

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