Salesman required to sell Birch swansong

By Fran O'Sullivan

It's got Bill Birch's name on it.

And while the Budget is Birch's swansong, it will be Treasurer-designate Bill English who wears the final verdict at this year's general election.

This will not be a visionary Budget. For that you will have to look across the Tasman to Treasurer Peter Costello's Budget which lays the path for Australia to redefine itself as a knowledge-based and leading edge scientific nation.

Visionary language sits more easily with the politician who will be around to implement the plan - in New Zealand the opportunity has been lost as Birch will retire this year and his heir, Finance Minister Bill English, does not formally takeover until after the Budget.

Inevitably, Birch will foreshadow future tax-cuts on Thursday.

That's why National Ministers have been doing a softening up exercise in recent weeks, suggesting the Government's Budget surplus "buffer zone" could be reduced beneath their previous threshold of 2.5 percent of GDP.

The softening up exercise has inspired a raft of articles endorsing Birch's view that now Government debt is down around 24-25 per cent of GDP - the buffer zone can to loosened to accommodate tax-cuts for corporates as well as top and middle-income earners.

However, the relaxation of the target figure for debt reduction is clearly an election sell-out. In last year's Budget, the Government set a target to reduce its debt to 15 per cent of GDP within five years.

The 15 per cent target was ambitious.

But contrast that target with the "zero debt by 2003" which Costello set in his Budget last week and it is obvious that New Zealand has no room to relax its debt reduction programme if it wants to retain future competitiveness.

As this Thursday's Budget will show, the Government has not made huge progress on reducing its debt levels - but there are three important factors to consider.

First, the 1998 Budget's prime author was New Zealand First leader Winston Peters. Since he was sacked as Treasurer, the Government has reduced the spending side of the equation built up through the December 1986 Coalition Agreement between National and New Zealand First.

Secondly, new economic growth forecasts (the test of the Budget forecast's integrity will be how the 'Treasury" figures line up with those of the Reserve Bank in its Monetary Policy Statement on Wednesday) will underpin the projected surpluses. New Zealand has come out of the Asian Crisis much faster than was projected by the Treasury in its December Economic and Fiscal Update.

Thirdly, the implementation of any major tax-cuts proposal is dependent on the election of a National-led Government which will raise further cash by swiftly privatising a raft of state-owned companies - such as the baby ECNZs, Television New Zealand and New Zealand Post.

The Contact Energy float was deliberately timed so that the Government could capitalise on its success within the Budget.

The Government has subsequently taken a lot of stick for failing to make enough scrip available for New Zealand "mums and dads" investors in both the Contact Energy float and that of Auckland International Airport.

Nevertheless those who acquired shares have seen their value increase.

Popular capitalism has taken the sting out of privatisation.

The ultimate scene-stealer in this week's Budget will be National's grab for the middle ground. The Cabinet's decision to rain on the Opposition's parade by introducing family-friendly policies such as paid parental leave is the most obvious case in point.

But it will require all English's undoubted salesmanship to translate the Budget into an election-winning formula.

To do that he will have to both think bold and talk bold. And this is against a background where plenty are arguing that New Zealanders have had enough of reforms.

In Australia, however, nobody in business is damning Costello for trumpeting the necessity of reforms in his Budget - far from it.

As Costello summed up last Tuesday night: "There are good reasons for a lot of optimism as long as we keep good policy going."

"If we were to sit down and say 'it's all over,' pat ourselves on the back and say we can stand still in the next decade, we will lose it. But if we take the opportunity to keep reform going on the eve of the 21st century ... the first decade of the 21st century will really be a great opportunity for Australia."

Admittedly, that was before Australia's errant Senator Brian Harradine threw his GST grenade - but the fundamental point remains the same.