Economy on downturn, says Cullen

Finance Minster Michael Cullen said next week's budget would be conservative. Picture / Fotopress

Finance Minister Michael Cullen said today a slowdown in economic growth appeared to be arriving.

Next week's budget would therefore take a long-term view to give New Zealand the chance to ride through the downturn in the next year to 18 months, Dr Cullen said.

Latest figures showed New Zealand's rate of economic growth slowed further in the final quarter of last year and was even weaker than most commentators expected.

Although there were indications of a bounce back in the March 2005 quarter, economic growth had probably peaked in the year to December 2004 "and while remaining positive is likely to slow in the second half of 2005", Dr Cullen said in a speech to the Canterbury Manufacturers' Association.

He announces the budget next Thursday.

"So we are entering a period of economic slowdown that looks set to continue for 2005 and into 2006," the Finance Minister said.

Instead of a growth rate of 4 per cent-plus per annum, the rate was heading to around 2.4 per cent by March 2006.

"The over-riding theme of this year's budget, as with the past five budgets, is the need to play the long game, to ensure that our economic fundamentals remain strong."

Next week's budget would continue "a conservative fiscal approach", Dr Cullen said.

Dr Cullen said the budget would commit far more resources to health and education than National ever did but would also signal an intention to "lower the growth trajectory" in these high expenditure areas over the long term.

Dr Cullen indicated targeting funding to some tertiary institutions that provided only "low quality" training.

He had already indicated the budget would include a package of tax changes that encouraged savings, reduced compliance costs for businesses, and changes to tax depreciation rules and tax treatment for research and development expenditure.

Further measures aimed at reducing tax-related barriers to the flow of worldwide capital, skills and labour would be announced in the budget.

Dr Cullen also said support for New Zealand Trade and Enterprise in 2005/06 would be more than double that in this year's budget.

- NZPA