Cullen rubbishes National pledges

By BRIAN FALLOW economics editor

National's promises of new spending would cost $2.6 billion a year by the third year of the next Government's term, over and above its planned tax cuts, says Finance Minister Michael Cullen.

"National is behaving like a minor party, promising the earth because it knows it will not be kept to its promises," Cullen said yesterday.

But Opposition Leader Bill English dismissed the costings as rubbish.

"We are not going to get into some costings argument just because he has put out some dodgy figures.

"No one questions our credentials on fiscal management ... We will be running lower surpluses than Labour - because we can.

"He is committed to the Cullen fund, which will export the surpluses to overseas equity markets."

National has said that in addition to its planned cuts to company and personal tax rates, which will cost $1.3 billion by year three, it has room for an extra $800 million a year in new initiatives.

Labour points out that this combined $3.7 billion in tax cuts and spending exceeds the projected $2.1 billion in New Zealand Superannuation Fund contributions that year.

Labour's estimate of National's new spending commitments is $2.6 billion by the third year, or $3 billion if the present Government's annual increases of $400 million a year in health spending are extended.

"This would require no other extra spending during the term. It implies a three-year wage freeze for police, teachers, the defence forces and other public servants.

"It assumes no unforeseen events like peacekeeping duties or response to biosecurity threat."

But when National released its economic policy, English said the $800 million a year was over and above the Treasury's normal allowance for increases in baseline spending.

He told Business New Zealand's pre-election conference that the biggest difference between National and Labour was the Cullen super fund.

"I'm not prepared to gamble the future of a generation of New Zealanders on the US sharemarket. National believes that money is better back in the hands of the families and businesses who earned it.

"That will give businesses more to reinvest and provide an incentive for people to get the skills that will get them that better job," he said.

But Cullen told the same gathering: "It is much better to attract capital by increasing the return on investment, not by pretending that leaving a bigger share of an inadequate return in the enterprise is the answer."

Those who wanted to dissipate the surpluses risked halting infrastructure development or blowing out debt, he said.

English said National would not amend the Reserve Bank's policy targets agreement.

"Higher inflation doesn't mean more growth. It just means higher interest rates."

Cullen said achieving a sustainable 4 per cent growth rate required a balanced strategy that focused on increasing the labour supply, improving productivity and investment.

"The target is achievable but it gets harder if there is too much emphasis on any one contributor to growth."

A small increase in total factor productivity growth, from 1.1 to 1.4 per cent a year, an increase in labour force growth from 1 to 1.5 per cent, and investment that increased the capital stock by 4.5 per cent a year would be enough to generate 4 per cent growth.

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