Fran O'Sullivan: Cullen cooks up a bland budget dish

The headlines said it all: "Solid, but short on vision", "Long on rhetoric, short on solutions", "Cautious view of global growth" and "Fumbles tough choices".

That was the Australian press last week, giving its verdict on Treasurer Peter Costello's Budget.

Judging by New Zealand Finance Minister Michael Cullen's pre-Budget spin, commentators on this side of the Tasman will not be compelled to dip far into the cliche bag, complete with all its ringing superlatives, when his budget is unveiled on Thursday.

"Boring but responsible" is as good as it gets promises the Finance Minister.

Like Costello, Cullen is forging a reputation for sound fiscal management.

Like Australia, New Zealand has enjoyed a sweet spot in the international economic cycle.

But unlike Costello, Cullen is not about to post a Budget deficit.

His tax rises and increased export earnings have swelled taxation receipts.

The Finance Minister is already dealing to the inter-generational challenge which superannuation presents, albeit with mind-boggling, naff advertisements.

His Budget will concentrate on education (particularly tertiary measures), health and economic transformation (whatever that means).

Cullen's Treasury advisers have debated this issue long and hard on papers posted on the department's website. A consensus has not emerged publicly, but the political rhetoric will camouflage that aspect when the Minister of Finance's statement is read.

There will be a sprinkling of innovation measures and a "new" investment promotion agency - policies which build on the Prime Minister's Innovation Statement but will still fall short of the major changes that many private sector businesspeople have advocated.

The outlook will remain promising; this is election year after all.

The international situation has also improved since the immediate downwards revisions of growth forecasts after September 11, and Cullen will project operating surpluses for the near term.

But his ability to indulge in another pre-election spendup is constrained.

Cullen front-end-loaded much of new government spending into the first year of the Government's three-year term, but then brought forward about $500 million of capital spending on hospitals, schools, prisons, transport infrastructure and military equipment.

Only $540 million of the $6.1 billion spending cap is now available to sprinkle about the electorate.

Just to confuse things, a new accounting format will be incorporated in this year's Budget. It will mean changes to the composition of items like revenues, expenses, assets and liabilities.

This is not the first time a government has revised the composition of its financial statements. The shift to accrual accounting, and the introduction of a Crown balance sheet in which contingent risks were measured are major improvements introduced during the 1990s.

But just like Australia, New Zealand continues to face enormous spending pressures from an ageing population and infrastructural demands.

As Westpac says, the Government's adherence to a "fiscal cap" has been viewed positively by financial markets, and spending pressures remain relatively contained.

"However, recent comments by the Finance Minister suggest that the Government will remove the fiscal cap at the end of 2003 in favour of alternative (but as yet unannounced) methods of containing government spending," it says.

Westpac believes such a move would be looked on unfavourably by financial markets, and raise doubts over the ability of the Government to maintain surpluses - even more so if the Government's Budget projections continue to forecast a rise in the debt-to-GDP ratio.

In that event, New Zealand's risk premium on borrowing would rise over the medium term.

The bank says this is not the time for the Government to be relaxing its fiscal restraint, even if the present favourable cyclical position implies there is the room to do so.

Westpac's caveats aside, the Government is indeed likely to do just that during its second term in office, particularly if the international situation does not deliver sufficient impetus for New Zealand to score sustainable economic growth rates at 4 per cent of GDP.

Cullen's mettle will be tested this Thursday.

So, too, that of the National Opposition, whose Auckland conference would hardly have registered at all if news media had not been tantalised by the prospect of some blood on the floor over the Serious Fraud Office investigation into Fay Richwhite donations.

Yesterday, former Reserve Bank Governor Don Brash sat quietly on the sideline at the Auckland divisional conference as economic spokesman David Carter outlined his strategy.

Carter has made precious little impact since taking on the finance spokesmanship this year.

Leader Bill English had plenty of smarts to take on the Finance Minister at his own game when he served as Opposition economic spokesman, but judging by Carter's performance yesterday he will not really cut the mustard when he has to do a demolition job on Cullen's third Budget.

Brash is seeking a berth on the Auckland Division's list for this year's election.

Right now he is finding it tough going minus the attributes of power, particularly secretarial help.

At the Reserve Bank, he was ably assisted by corporate affairs manager Paul Jackman, who ensured a steady media diet of hype glossed over the heavyweight nature of much of the bank's publications.

Brash's speeches, however, were his own. He wrote them then, and he writes them now, using the narrow gap between his Reserve Bank role and the time when he is officially confirmed as a National list candidate to ramp up discussion on issues such as welfare dependency.

North Shore business leaders got the treatment last Thursday when he suggested limiting the time the "able-bodied" could be on unemployment and domestic purposes benefits.

English would prefer him to keep his views personal while National's policy is being finalised.

But Brash thinks that 350,000 people of working age on benefits is a statistic which should make the country sit up.

Surprised by his failure to score newspaper space compared with his Reserve Bank days, Brash is likely to keep on ramming home his messages in a series of pre-election speeches.

Another speech is to come in Auckland when he will address the challenge of how fiscal policy can contribute to growth - and take issue with the claims from both politicians and business that his own policies as Reserve Bank Governor had stopped the prospect.

He may be a political rookie, but he clearly has the smarts to take Cullen on when he delivers his Budget speech - pity we will have to wait until next year.

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Budget links - including Treasury documents:
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