Canny Cullen saves for rainy day

A cautious mid-term Budget long on "innovation" but shorter on spending for major social policies has left the Government with $815 million up its sleeve for an economically uncertain election year.

"Satisfactory ... but not satisfying" was the verdict yesterday of Finance Minister Michael Cullen on the country's immediate future.

He said changing global economic prospects had lowered New Zealand's expected growth but, at an average 3 per cent over the next four years, it would be stable.

In a Budget pitched as the second-leg of a double - last year's involving heavy social spending and this one focusing on its "essential companion," economic growth - Dr Cullen made much of his prudence and orthodoxy.

He announced a surplus for the current year of $640 million, and reduced forecasts for next year of $1.4 billion and $2.4 billion in 2003. Confirming that the Coalition would breach its self-imposed spending cap of $5.9 billion, he said it was necessary to keep enough money for "credibility" in next year's Budget.

Opposition Leader Jenny Shipley labelled the Budget "grey, faceless and visionless."

"This Government has blown the fiscal cap, has raised taxes but failed to deliver more spending on health and education," she said.



Economists were generally neutral. One said this was a "soggy year," and ratings agency Standard and Poor's saw no impact on the country's international standing.

The New Zealand dollar held steady, trading around $US0.4174/81 at 4 pm, and the sharemarket shrugged off the no-surprises Budget.

But 10-year bond yields rose six basis points to 6.72 per cent after the Government said it planned to issue $3.5 billion in new debt in the year to June 30, 2002.

The Budget contained a bundle of smaller-scale moves to stimulate what Dr Cullen called the "innovation strategy."

That included a "more proactive role by the Government in attracting foreign investment to specific growth opportunities, especially at the higher-technology and higher-value-added end of the spectrum."

New centres of research excellence would be established with $26 million transferred from existing budgets, a "bold move" would be made to to commercialise science efforts in the public sector and a New Zealand Venture Investment Fund would be set up with $50 million from crown research institutes and $50 million from SOEs.

As expected, the Budget was quieter on spending in traditional big-ticket social policies.

No further detail was given on the paid parental leave scheme coming in from April 1 next year.

The term Closing the Gaps was not mentioned in the two paragraphs for Maori initiatives.

The Budget had the smallest increase in health spending since 1992, and is particularly tight on money for hospitals.

More spending on schools and early childhood education was overshadowed by the controversial funding-fees tradeoff for tertiary institutions, which had already been rejected.

Expressing a desire for action on national savings, Dr Cullen moved the first $600m into the New Zealand Superannuation Fund.

"By diverting a part of the emerging structural surplus into the fund, this Government helps future governments maintain services, including the provision of a state pension, to later generations."

The Government said the public service superannuation fund and the Natural Disaster Fund would be allowed to diversify their investments to boost capital markets and returns to the state.

Officials have also been told to find ways by the end of this year to lift private savings.



Dr Cullen said that with average growth of 3 per cent a year, any government, Labour or National, would have about $900 million a year to spend, assuming no new taxes.

Getting the economy growing faster "is a long-term project" which would require a big jump in productivity and manpower training.

Government spending at 33.6 per cent of GDP for 2001/02 is its lowest in relation to the economy for more than 20 years.

www.nzherald.co.nz/budget

Charts:

Government Revenue

Government Expenses

Budget links - including full text of documents


Do you approve of Dr Cullen's second Budget?

Use a touch-tone phone and call our free opinion line on 0800 iTouch (0800 486 824).