Cullen hints at tight budget

Finance Minister Michael Cullen says a surplus doesn't mean mountains of spare cash. Picture / Hawke's Bay Today

Finance Minister Michael Cullen has given a strong indication that next year's budget will not be generous, and that he is not going to give up his revenue-gathering taxes.

He said today the Budget Policy Statement, which sets the parameters for the budget and will be released next Tuesday, had four aspects which he thought should be clearly understood.

The first was that an operating surplus should not be confused with a pile of ready cash.

"The operating surplus also includes commitments to capital spending," he said in a speech to Four Winds Communications in Wellington.

"So while it is true that our revenue streams more than cover our costs, we are also investing in the future through capital spending and through strengthening our financial position to meet future expenditure pressures."

The second was that there were important cyclical elements underlying current trends in revenue and expenditure.

"Simple prudence tells us that we cannot base important long-term decisions on what is happening at either extreme of the cycle."

Thirdly, fiscal forecasts were predictions of what would happen, not descriptions of what should happen.

"The growth path of some areas of government spending is clearly unsustainable.

"Health expenditure has been growing at something like 4 per cent per annum in real terms... simple mathematics tells us this cannot go on indefinitely otherwise the entire economy will consist of nothing but the health system."

The fourth was that while there might be money available for a spend up in the next couple of years or so, that was much less true for the long term.

Dr Cullen said those factors supported a cautious approach to revenue and expenditure, rather than "the enthusiasm for profligacy" that a healthy surplus seemed to engender.

"Loose fiscal policy is a kind of 'boy racer' approach to better performance," he said.

"The engine revs faster, the wheels spin, and there is a pungent aroma of burning rubber; but in reality we are just going round in circles.

"What the Budget Policy Statement will show is an operating surplus coming back over the next three or four years to the level required to fund contributions to the New Zealand Superannuation Fund and to keep the gross debt to GDP ratio from rising."

Dr Cullen listed one of his immediate challenges as increasing fiscal literacy.

"I have to say I am regularly disappointed by the inability of many in the media to grasp some quite simple concepts in fiscal management," he said.

"In the recent past this has led to widespread confusion on the actual state of the Government's finances."

- NZPA