Fran O'Sullivan: Nats left with little wriggle-room

COMMENT

Finance Minister Michael Cullen belted business twice yesterday. One through the pocket and then twice with his tongue.

Cullen's fifth Budget is all about defining the political ground for next year's election; not keeping business (full of "ideologues" and "doom and gloom Cassandras") sweet.

And certainly not about reassuring the business sector that the hard work they have put into swelling the Government's coffers - which resulted in a big increase in company taxes - might one day be returned through tax cuts.

The message that Cullen's Budget will leave with voters is this: We (Labour) will invest in your future by pumping up family income. They (National) will slash it.

That is the ground on which the Government will fight next year: Labour investing - National slashing.

Then it will leave the fiscal coffers so bare that National is forced to signal the spending cuts it will make on attaining office in order to retain credibility.

It is a stratagem that is classic Third Way politics of the Tony Blair and Gordon Brown UK school.

Get into power.

Establish a reputation for fiscal prudence and stable macro-economic management. Then signal, in your second term in office, that the social dividend will be played out into a third term by cunningly ensuring much of the increase in family take-home pay (either through tax credits or increased benefits) is dependent on the Government's re-election.

The major difference is this.

Blair and Brown cloak their policies with business-friendly rhetoric but New Zealand Labour has stopped bothering.

Quite why Cullen chose yesterday to beat business around the chops with a "be grateful" message is unfathomable.

Is it really just the Government's good fiscal management that has created a stronger economy to fuel business growth? Business will benefit from the extra spending power put back into the economy. But how much better would the economy have been if it had not been taken out in the first place to build obscene Budget surpluses?

The strong company profits that have enabled Treasury to boost its expectations that corporate tax might rise to $7.7 billion in 2008 from $6.9 billion in 2004 will stay in Cullen's pockets - before being filtered out.

On today's figures it would cost $420 million per year to reduce the corporate tax rate to 30 per cent, or nearly half the $800 million extra company tax Treasury expects will flow through on an annualised basis by 2008.

Why could he not have used the opportunity yesterday to signal a reduction in the corporate rate in 2008?

My pick is that this Budget is more about laying the ground for future tax hikes by creating more New Zealanders who are dependent on the state for their future.

How long will it be before the rhetoric that underpins the failure to cut company taxes - "New Zealand businesses are better off in aggregate than Australians" - morphs into the creation of "us and them" politics designed to lay the ground for an increase in the top personal rate?

The tax hikes might come sooner than you think.

The Government's failure to address this country's creaking infrastructure in the Budget is astonishing.

On May 19, the Government released a lacklustre audit of the country's infrastructure by PriceWaterhouseCoopers.

"It was evident during the preparation of this report that there was heightened awareness of infrastructure issues and the critical importance of functioning infrastructure to sustainable growth," the audit said.

This was a clear understatement given the reaction by 120 top New Zealand CEOs in the Herald's Mood of the Boardroom Survey who rated infrastructure a serious impediment to business confidence.

The Budget signals the Government will deal with infrastructure issues later this year, along with the vital tax signals necessary to ensure greater exploration for oil and gas, and moves to rework the Resource Management Act.

But frankly, that is much too late.

Just how close New Zealand is to infrastructural breakdown became clear this week, when Transpower indicated it might not be able to guarantee there will be no power blackouts in the upper South Island this winter.

Transpower had earlier predicted power supply problems might occur around 2006, said Electricity Commissioner Roy Hemmingway, who was surprised to discover there might be a problem this year.

If problems are likely in 2006 surely this Budget would have set out the fiscal remedy now and not wait for the breakdown that would make a mirage out of any Treasury forecasts.

Just a month ago, the Government's Growth and Innovation Advisory Board released a survey that found New Zealanders like businesses that "give something back", but distrust big business.

The board said it hoped its research would be a linchpin for growth and would take the findings to communities around the country to promote discussion on how to help New Zealanders see economic growth in a new light.

After the anti-business rhetoric that percolated through yesterday's Budget, their first target should be Cullen.