Be prepared for the expected: Cullen

By AUDREY YOUNG political editor

New Zealand faces one of the most unpredictable economic environments of the past 25 years, Finance Minister Michael Cullen said yesterday, a week before delivering his fourth Budget.

The uncertainty meant that there would be less confidence about the forecasts made in the Budget than would be ideal. It also meant there was likely to be much more variation in growth between sectors, industries and regions.

"The average will mask quite major internal differences," he said in a speech to the Canterbury Manufacturers' Association.

He also cautioned his audience against becoming too pessimistic.

But he said NZ faced a future dominated by the longest global bear market in 50 years, weak investor confidence, uncertainty about the post-Iraq war reconstruction, pessimistic forecasts about returns to dairying, Sars, questions about the cost and supply of electricity, worries about the exchange rate, the effects of dry conditions in parts of the country and frosts in other parts, "and I suppose everyone in the audience could add two or three items to that list".

"It is the length of that list and its complexity that leads me to say that this is one of the most unpredictable environments that we have encountered since the stagflation [little or no growth and high inflation] and Third World debt crises of nearly 25 years ago."

But Dr Cullen also described a possible positive scenario in the uncertain future.

"A postwar reconstruction may well see commodity prices rise and petrol prices fall as Iraq pumps more oil and buys the items it needs for reconstruction.

"Equally, continued instability could have the opposite effect.

"The world economy could remain subdued or it could finally get some traction now that there is more certainty about Iraq."

"Sars may slow Asian tourism here but other tourists may divert from Asian destinations to New Zealand ones."

Given the environment, this was not the time for stunts in the Budget, he said. "Be prepared for the expected."

Meanwhile, National finance spokesman Don Brash called for a cut in the corporate tax rate of 33c and top personal tax rate of 39c to "provide the right incentive for New Zealanders to grow their businesses and invest".

Though National had no quarrel with cutting taxes for lower to middle-income groups, "it does have a quarrel with leaving it at that".