What is the best way to measure the government's impact on the economy?
By looking at its spending and revenue as a proportion of the economy.
In the 2000 Budget (look at p39 of the PDF), revenue and spending were aligned (no surplus) at 32.6% of GDP ($36.4bn with GDP at $111bn).
In the 2006 Budget, revenue was 36.3% of GDP and spending was 32.3% of GDP ($56bn revenue and $50bn spending, with GDP at $155bn - note the core crown is the closest approximation of the 2000 figures).
So what has changed?
- The nominal GDP has grown hugely, thanks to strong economic growth and the inevitable process of inflation, the latter though only at low levels and economic growth at record high levels through the boom years.
- The budget surplus has grown, but core crown expenses have been contained as a static share of the economy (or slightly falling).
The financial illiterates can point to mega billions more money being spent, but that isn't the point. We are all better off than in 2000. Incomes are higher, prices are higher. That affects the public sector just as much as the private sector; government as much as firms as much as households.
The Crown is taking a little more in revenue than in 2000, in a relative sense, but is spending the same proportion of the economy. That is the only fact which matters.
Cullen has ploughed all the budget surplus into paying off debts and saving for the future retirement burder.
Wise? Absolutely - very cautious but very understandable.
Profligate? Not even remotely.
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