No frills, no thrills Budget

By FRAN O'SULLIVAN

Finance Minister Michael Cullen has taken the Budget tax cuts that business wanted and invested them in a "Government knows best" knowledge economy drive.

Dozens of projects, ranging from the well-telegraphed $100 million investment in a Capital Seed Fund through to a $2.25 million "brain gain" initiative to harness world-class New Zealanders to assist their country's economic transformation, were unveiled at Parliament yesterday.

A range of unashamedly elitist measures aimed at forcing tertiary education institutions to lift their game and focus on economically relevant disciplines, creating a super-class of outstanding teachers, and launching a culture of success across fields such as arts, sports and business were outlined.

But Dr Cullen's second Budget was as he predicted: Boring.

Budget 2001 contained no big ideas.

The amount invested in Knowledge Society projects was spread out over several years, and the one measure that would have really galvanised business - a cut in the 33 per cent company tax rate to restore New Zealand's competitiveness with its trading partners - did not warrant a mention.

Dr Cullen's Budget speech instead focused on the major role he expected the Government would play in underwriting the development of the economy and New Zealand's social services: "None of this comes cheap and the Government awaits with interest the report of the Taxation Review Committee on how best to raise the necessary revenue."

The Minister of Finance promised a tight Budget, but the promise was in reality little more than window-dressing.

The Budget 2000 surplus forecasts of $1 billion (2000/2001) rising to an election year figure of $2.7 billion (2002/2003) have been dramatically reduced to $641 million and $2 billion respectively.

Dr Cullen had already blown his self-imposed new spending cap by $230 million and the forecast Budget surpluses, which must finance the new Superannuation Fund, will be quickly eroded if international economic conditions worsen.

Dr Cullen said the economic and fiscal performance for the next few years represented the "most benign" combination of circumstances for many years. "But it cannot be described as satisfying. It is good but not good enough.

"We need to set ourselves a goal of being back in the top half of the developed world in terms of per capita GDP - a position we have not occupied since 1970," Dr Cullen said.

That aim requires New Zealand to lift its present sustainable growth capacity from about 3 per cent to 4 per cent a year or more, lift productivity and increase savings.

But growth forecasts are down to 2.6 per cent of GDP for the March 2002 year.

Though Treasury is forecasting growth to average around 3 per cent of GDP for the next four years, this will not be enough to deliver Dr Cullen's stated ambition.

Dr Cullen met the international risk head-on by stating the Government would act to protect its future surpluses if the outlook suddenly deteriorated.

But business was yesterday sceptical of the Finance Minister's ability to hold the fiscal spending line in an election year, after this year's buckling.

In the background is a range of infrastructural development spending - still to be quantified. Dr Cullen has pushed out till next year and beyond some $300 million of capital spending, which had been earmarked for the second half of 2001/2002.

Budget 2001, with its further shift in focus towards "nanny-state" measures, marks another step along the road away from the purely free-market economic regime which dominated New Zealand for 15 years before the 1999 election.

But the Labour/Alliance Government has tackled superannuation after years of ducking by their predecessors.

As the New Zealand Superannuation Fund accumulates savings, the Government's ability to fund New Zealanders future superannuation will improve, net debt will reduce and the liquidity of capital markets will improve.

Many Budget measures had already been announced.

Among them:

* Eco 2001 Package, which includes extra funding for biosecurity measures to prevent foot-and-mouth disease entering New Zealand.

* Defence Package - to re-equip the Army, replace the HMNZS Canterbury and upgrade the Air Force's Orion, Hercules and Iroquois fleet.

Dr Cullen said these measures were integral to his decision to break the Government's new spending cap by $230 million.

Trade New Zealand's budget is finally being expanded so that it can develop and expand vital export links and the Government has reaffirmed its programme to develop international free-trade agreements.

Dr Cullen, the academic historian, yesterday achieved his aim of delivering a predictable Budget that would not make an impact on history.

Next year is his final chance before the election.

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