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Insights 18: 23 May 2025
NZ Herald: Dr Benno Blaschke on supermarket breakups versus market entry
 
Newsroom: Dr Eric Crampton on New Zealand's film industry subsidies
 
The Australian: Dr Oliver Hartwich on New Zealand's artificial intelligence reluctance
Deficits forever?
Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz
This week’s budget projected no return to balanced books. It is difficult to see how recent budgets from National and Labour comply with the Public Finance Act’s fiscal responsibility provisions. 

It is a problem.  

Headline figures projecting a return to surplus ignore ongoing accumulating deficits at the Accident Compensation Commission (ACC). ACC is expected to spend $2.9 billion more than it earns in 2026 and 2027, with ACC’s deficit reducing to $2.3 billion by 2029. 

When those deficits are included, the government is in deficit through 2029.  

Making sure ACC is on sound footing matters in its own right. But governments should not have an incentive to push expenditures over to ACC to avoid fiscal rules.  

Deficit measures that adjust for the pace of economic growth continue to see deficits of about 0.5% of GDP in 2029. And those require us to believe rather ambitious assumptions about spending restraint.  

The problem was caused by substantial spending increases under the prior Labour government.  

Recent work published in Policy Quarterly highlighted substantial non-Covid spending increases under Finance Minister Robertson. The government is taking a very long time to unwind Labour’s spending increases. And ignoring ACC’s deficits overstates the government’s fiscal prudence. 

The Public Finance Act requires fiscal responsibility. The legislation says that governments should aim at balanced budgets. It allows for deficits when circumstances warrant. But it requires the government to explain why it is in deficit and its plan for a return to surplus.  

One simple way of understanding the rule: the government should not have spending plans that exceed government revenues during normal times. In more jargon-laden terms, it requires not running cyclically adjusted or structural deficits.  

Governments ran those kinds of deficits from 2020 through 2025. And Budget 2025 projects those kinds of deficits through to the end of the forecast period when ACC’s deficits are included. 

Deficit spending was eminently justifiable during Covid. But it is incredibly difficult to see how that kind of deficit can persist for a decade if the Public Finance Act has any real meaning.  

I was fortunate to be allowed to attend this year’s Budget lock-up, but not fortunate enough to be called on to ask any questions.  

I would have liked to have asked one of the Secretary for the Treasury. Do the Public Finance Act’s fiscal responsibility provisions still have any real meaning? They seem able to justify just about anything a Minister might want. 
The foundation of freedom: Why legal principles matter
Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz
This week, the hotly-contested Regulatory Standards Bill was introduced to Parliament. 

Vocal critics claim that the Bill improperly elevates selected legal and constitutional principles. The subjects of their ire include the principles of the rule of law, equality before the law, personal liberty and property rights. 

One misunderstanding is that this elevation undermines the scope for collective action. To the contrary, these principles accept that Parliamentary law is sovereign. Parliament can over-ride any of guiding principles at will. But it should make it clear that it is doing so. 

The Bill itself is a mild transparency measure. It aims to make departures from these principles more visible to Parliament and the public. As before, Parliament does not have to take any notice. 

Some opponents disparage the principles as ‘novel’. Actually, they form the bedrock of our common law heritage.  

This is not a partisan view. Cabinet’s Legislation Guidelines since 2001 have stressed their fundamental nature.  

Hansard 2011 provides another example. It records Labour MP Charles Chauval’s speech on the first reading of an earlier version of the current Bill. His overall assessment was that these principles were "incontrovertible" and "the basis on which the legal system rests."  

On the particulars, the legally-qualified Chauval said that: 
  • "obviously, legislation should be consistent with the rule of law”; 
     
  •  it “should not adversely affect rights and liberties or impose obligations retrospectively”; 
     
  •  “every person should be equal before the law”; and,  
     
  • with respect to the Bill’s compensation principle ─ when property rights are taken or impaired ─ “[a]gain no one who has studied our constitution would find that surprising”. 
The view that the 2025 Bill unduly “elevates” these principles is thereby deeply disturbing. It questions the very foundations of New Zealand’s legal system. 

Most people would agree that Parliamentary law should accord with sound legal and constitutional principles, where possible. Each law passed should plausibly make or allow New Zealanders to be better off overall. 

Existing Cabinet instructions have long imposed these tests for new laws and regulations. This structure is not novel. 

The problem is inadequate compliance. The government of the day always has a temptation to conceal information about a measure that might be a bit embarrassing. Passing bills under urgency is a red flag in this respect. 

The Regulatory Standards Bill’s modest aim is to make wilful lack of disclosure harder. It gives Parliament and the public more clout.  

It should not be needed, but it is needed. 
A new approach to neutrality
Dr James Kierstead | Research Fellow | james.kierstead@nzinitiative.org.nz
Last week, the University of Otago came out with its new statement on institutional neutrality – a statement that was not only new, but that also forged a bold new approach to the whole concept of neutrality. 

Institutional neutrality, the statement declares, ‘means that University leaders will not communicate institutional positions on controversial political topics except where such issues directly impact the University’s role or functions.’ So far, so neutral – and nothing much that’s new.  

But then the statement goes on to say that ‘examples of such functions are the safety and wellbeing of staff and students, financial and regulatory concerns, sustainability, equity, ethical investment, and obligations under the Tiriti o Waitangi’ as well as everything in the university’s ‘strategic documents and frameworks.’ 

Presumably, this includes the university’s ‘Vision 2040’ scheme, which aims ‘to integrate te ao Māori, tikanga Māori, te reo Māori and mātauraka Māori into our teaching, learning, research and support services.’ 

All of this, I would submit, constitutes a highly innovative take on neutrality. Rather than taking the boring, old view that institutional neutrality involves remaining neutral on controversial topics, Otago has decided that neutrality can involve universities being decidedly un-neutral on the very topics that people are most concerned about. 

That’s not just my hunch. The Treaty of Waitangi consistently emerges as the number one issue that academics feel uncomfortable discussing, with fully half of respondents telling a Free Speech Union survey in 2022 that they didn’t feel free debating the topic. 

They will surely be comforted by the news that their employer has now found a way to be absolutely, 100% neutral except regarding the Treaty – as well as other topics (like sustainability and equity) that have a habit of evoking debate and disagreement.  

It is entirely coincidental, of course, that Otago’s announcement comes just as the Education and Training Amendment Bill has passed its first reading in Parliament. That bill asks universities to commit to institutional neutrality as part of free speech policies that universities will be expected to draw up. 

Luckily, though, Otago has already made clear how committed it is to real institutional neutrality. Everyone who is convinced by their statement should now immediately refrain from supporting the new bill. And from pressing for changes to it that would force universities like Otago to adopt old-fashioned, outmoded concepts of neutrality that actually involve universities remaining neutral on hot-button issues. 
 
On The Record
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