O'Sullivan: Cullen's cake leaves business hungry

Budget 2000 is a tumbrel - and there's no surprise who the chief architect is.

Nine years in the making, the tragedy for Treasurer Michael Cullen and his first Budget is that it will not prove to be the Bridge to Business which he pledged a mere month ago. There is a leadership deficit, which business must now fill.

The bottom line is that much of the bottom line for this Budget had evaporated even before its passionless delivery yesterday. The slip in business confidence over the past six weeks, a host of prior anti-business actions by Government and the questionable handling of monetary policy, had already seen to that.

Nor did Dr Cullen deliver on Labour's election promise to deliver a "Vision for the 21st Century," in which New Zealand would be "a knowledge-based, high-skills, high-income, high-employment economy underpinned by an active Government committed to increasing equality and the building of strong social services."

Social services spending has been "front-end loaded" with a host of admirable policies that cover some of the gaping sores exposed during the nine-year term of this Government's predecessors.

They are policies that even the Government's most ardent business critics would admit go towards building the decent society that National promised and then failed to deliver. On that score, the Coalition Government should be applauded.

Likewise for the proposals announce before the Budget to invest in the arts and culture, to foster excellence in sporting talent and to make a direct investment in our next America's Cup defence - a great opportunity to promote New Zealand as a worthwhile investment destination, a country of bright people and smart technology, not just a sporting epic.

But the economic cake must be baked before it is divided.

Government spending on all the measures that would have inspired companies, business people and budding entrepreneurs to take a strong stake in New Zealand's future has been "back-end loaded."

The figures are compelling: one-third, or $112.5 million, of the $331 million allocated for investment in industry assistance will not even take place in the Government's three-year parliamentary term. The Government must be re-elected to deliver on that promise.

At a time the Institute of Economic Research has just revised downwards its growth economic forecasts to 3 per cent of GDP from 4.3 per cent of GDP forecast just three months ago, the investment in industry assistance for the current fiscal year is a miserly $34 million.

The fact is that Labour's post-election strategy to deliver first on the policies which were anathema to business - before beginning the cosying-up process - has back-fired.

Like the proverbial Nero, it fiddled in business' business. It rammed through the re-nationalisation of accident insurance, introduced onerous employment law changes that went wildly further than Labour had indicated during pre-election discussions with business and backtracked on research and development tax write-off pledges. And it lost the confidence of business in the process.

In politics, as in business, you make your luck.

Dr Cullen has a long way to go before business will accord him the respect that he would have won if he had used the past six months to draw-up an inspirational Budget.

Studying the Budget indicates that few policies have been developed further than the outlines that Labour signposted during its election campaign, more than six months ago.

The Treasurer should have used the occasion to unveil the board of Industry New Zealand and to announce partnerships with business and government players to bring in the valuable overseas financing that we desperately need to finance fledgling entrepreneurial schemes - and our burgeoning current account deficit.

We are now economically vulnerable. We need $8000 million in capital flow a year to balance the books - and that's if economic fundamentals hold true.

Only 3 per cent of New Zealand firms are exporters. Even with the collapsed exchange rate, they will hardly earn enough foreign exchange to bridge that gap.

Overseas investors and rating agencies such as Standard & Poor's are scrutinising us rigorously. New Zealanders are shifting more of their own investments and assets overseas to enjoy the boom in prosperity that many Western countries are experiencing through new technology industries, tax writeoffs for research and development and lower taxes.

There is little in this Budget to reverse the process. The Government even passed by an opportunity to cut the corporate tax rate to at least the 30 per cent Australia has announced.

When a Treasurer announces his first Budget on the same day as a hideously large current account deficit is unveiled, there must be questions on judgment.

A deficit larger than that included in Dr Cullen's own Budget projections led the New Zealand dollar to be sold down and interest rates pushed up again.

Budgets are also about perceptions and timing.

Make no mistake the Budget has been framed with the Government's eyes fixed firmly on the last election - it will not win them the next.

Budget 2000 feature

Minister's budget statement

Budget speech