Budget 2024: Inflation-Adjusted Spending Cuts in Health and Tertiary Education

As the Economic and Fiscal Update (EFU) in Budget 2024 (p.146) makes clear the current National Government is committed to cutting spending on health and education in real terms, that is, once inflation is taken into account, from 2024 to 2027. It never ceases to amaze and frustrate me that most of New Zealand's political journalists and commentators are apparently incapable of doing basic arithmetic.

Why does this matter? According to the EFU CPI inflation was 6.0% in 2023 and will be 3.4% in 2024. If you look at the figures in tables 5.3 and 5.4 and keep the rate of inflation in mind you will see why it is so important that inflation is taken into account.

 

6% of the $28,489 million ($28.5 billion) spent on health in 2023 is $1,709.34 million ($1.7 billion). This is how much extra money the government would have to spend on health in 2024 just in order to maintain the existing level of spending at this level. The previous government did allow roughly this amount for 2024 in its final budget, while the current Government is increasing nominal spending on health by $411 million in 2025, much less than the $1.03 billion required just to maintain the existing level of funding in real terms.

 

The previous Labour Government cut spending on tertiary education from $4,804 millions ($4.8 billion) in 2022 to $4,663 million ($4.7 billion) in 2023. Allowing for inflation of 6% in 2023 this amounted to a very large cut in real terms. 

 

Unfortunately, things don’t get any better with this Government. Keep in mind that to keep up with 3.4% inflation in 2024, there would need to be an extra $297.78 million spent on tertiary education in 2025. The $217 million nominal increase forecast for 2025 thus amounts to yet another cut in real terms for the tertiary sector. Having started the process of doing the arithmetic, you can run these numbers on your calculator factoring in the CPI inflation figures from Table 1.1 Economic Forecasts on p.10 of the EFU. 

 

The upshot is that this Government is misleading the public when it says that it is increasing expenditure on health and education – this is only true if the figures are not adjusted for inflation. Pity New Zealand’s journalists and the ‘commentariat’ haven’t bothered factoring inflation into their comments on the budget.