Unleashing public finance
Dr Ganesh R. Ahirao & Morgan Edwards
Independent economist / University of otago
Dr Ganesh R. Ahirao is an economist, delivering insights from the perspective of whakapapa, whenua, and whai hua (value). His commentary centres on natural, physical, and community resources, as distinct from financial accounts. Formerly Chair of the Productivity Commission, Ganesh was previously Research Director at BERL and academic roles at Victoria University. He currently holds a range of voluntary governance positions in charitable and for-purpose organisations.
Morgan is a PhD student at the University of Otago. He is researching the mechanics of government finance in New Zealand which aims to show how government spending actually works.
Key points from expert talk
- Public finance shapes governments’ ability to respond to the polycrisis. Prevailing ideas about fiscal responsibility underestimate the government’s capacity to invest in climate resilience, public services and infrastructure and community wellbeing.
- Governments are not financially equivalent to households. Unlike households, governments can borrow on different terms, refinance debt indefinitely and levy taxes, making common household budget analogies misleading when applied to public finance.
- The real constraint on government spending is productive capacity, not money itself. Inflation arises when spending exceeds available labour, infrastructure and natural resources, rather than simply from higher levels of government expenditure.
- The greatest burden on future generations is underinvestment, not public debt. Failing to maintain healthy ecosystems, resilient infrastructure and effective public services leaves future generations with fewer productive resources and greater economic risks.
- Public finance should be directed towards long-term resilience and wellbeing. The current narrow focus on fiscal management should be replaced with an approach that prioritises environmental sustainability, essential public services and a minimum social standard for all New Zealanders.
- Government spending creates money within New Zealand’s monetary system. Government spending is not operationally dependent on prior tax collection or borrowing. The government has unlimited financial capacity to make good on its spending commitments as approved by Parliament.
- Taxes remain essential, but not primarily to fund spending. Taxation plays important roles in managing inflation, redistributing wealth and supporting the monetary system, but taxes are not required to finance government expenditure.
- A better understanding of public finance could expand policy options. Improving public and political understanding of how government finance operates would enable more informed decision-making on investment in climate mitigation and adaptation, healthcare, housing and other public priorities.