Between the lines: Prefund of super may hit SOEs

By BRIAN FALLOW

The Government may end up raiding the balance sheets of state-owned power companies to stash away money for future superannuation costs.

Last week's budget provides for $900 million-worth of capital spending in the coming year and $750 million in each of the two following years.

But it goes on to say that the unallocated portion of those funds - $483 million over the next three years - is unlikely to be enough to cover future capital spending pressures.

So the Government "plans to investigate the possibility of significant withdrawals of capital from state-owned enterprises" to top up the coffers for capital spending.

Scooping equity out of the SOEs - the fragments of the former ECNZ provide the likeliest targets - and replacing it with debt, would take some pressure off what look like tight Crown cashflows over the next three years.

The coming radio spectrum auction will also help.

The Government has yet to announce details of the super prefunding scheme, but the budget forecasts include an indicative track in which $600 million is set aside in the fiscal 2002 year, rising to $1.2 billion the following year and $1.8 billion the year after.

That would consume half the projected cash surplus in fiscal 2002 and virtually all of it the following year.

But will the money be there?

The Treasury's forecasts face risks on both the revenue and the spending sides.

If economic growth is weaker than they forecast, the tax take will be lower.

The Treasury reckons 1 per cent less growth in GDP cuts revenue by $360 million.

As an illustration of how wide the margin of error in growth forecasts can be, in last year's pre-election fiscal update, the Treasury was forecasting GDP growth of 2.3 per cent in the year to June 2000.

It now sees 4.2 per cent growth in the same period.

On the spending side, as several commentators have pointed out, the Government has already committed over 70 per cent of the extra $5.9 billion of new spending it has said it will allow itself over the next three years.

The effect of that "front-loading" is that only $550 million is up for grabs in next year's budget and $575 million in the following, election, year.

So a bit of a credibility discount attaches to the claims being made of fiscal probity - not least by the man himself - for Michael Cullen's first Budget.

It is not hard to imagine a scenario in which revenue disappoints, there has been some slippage on the spending front and the superannuation fund still has to be fed.

How tempting it would be in those circumstances to treat the ECNZ offspring as a piggy bank.