Cullen dampens spending expectations

Finance Minister Michael Cullen warned Labour Party delegates yesterday that big spending in education, health and welfare will not continue and that future dreams will need modest price tags.

His efforts to hose down expectations before next month's Budget contrasted with the tone of Prime Minister Helen Clark's speech on Saturday which indicated Labour's spending record will be a strong selling point in the election campaign: $2.6 billion more on health than in 1999 when Labour took office, and $2.25 billion a year more than in 1999; and a $1.1 billion annual cost of Working for Families when it is fully implemented in two years.

Dr Cullen said the party needed "realism" to meet challenges for the future and they could not be met by either "wishful thinking or free-market brutality".

"We face the very real challenge of moderating the high growth in spending that we have been able to afford over the last couple of years."

A strong economy had enabled Labour to implement many of its dreams in education, income support and primary health care. And there would be increases in education and health in the Budget on May 19 and future Budgets.

"But the rate of growth in spending in last year's Budget, and to come in this year's, cannot be sustained into the indefinite future on the basis of present projections," Dr Cullen said.

Treasury's December forecast estimated that growth for the year to March this year would be 4.7 per cent; but t the growth rate would be almost halved to 2.4 per cent for the year to next March.

Cuts in taxes in the business sector (though not tax rates), a first-home ownership savings scheme and details of a scheme to encourage workplace savings have been foreshadowed as key elements in this year's budget.

Yesterday he said the workplace savings scheme would be linked to "a necessarily modest scheme to assist more families to buy their first home and achieve the New Zealand dream".

Dr Cullen said New Zealand could not afford huge bribes to induce higher savings.

At at earlier workshop, he also dismissed as a "weak argument" the suggestion that New Zealand's poor savings record could be explained away by saying people could not afford to save.

"We used to save more than we do now when we had lower incomes than we do now; 25 to 30 years ago New Zealanders saved more than they did now even though real incomes were lower.

"Countries poorer than New Zealand saved more."

He also related a low level of savings to a high level of foreign debt.

"Either we save more or we have to accept very high levels of foreign ownership of the New Zealand economy."

He said the Government laid claim to competence in its management of problems, and it had had a "a couple of doozies" this year including the "mess-up by NZQA" of last year's scholarship exam.

"The issue is not whether problems arise but how quickly and effectively they are dealt with - or to, as the case may be."

Both Dr Cullen and Helen Clark on Saturday received a rapturous reception from the congress, the party's trimmed down annual conference held in election year.

She said the Herald-DigiPoll survey which put her party on 47.7 per cent, 13.2 points ahead of National, was gratifying. But she also had a warning for delegates.

"Complacency is among the most perilous diseases in politics, and its twin sister is arrogance."

Party president Mike Williams said he was not concerned that Auckland list candidate Steven Ching had not declared that he had previously been charged with obstruction of a fisheries officer - as revealed in yesterday's Herald on Sunday.

The candidates' declaration form required only convictions to be declared and he did not have any.

Mr Williams said he wanted to lower expectations of an early election but noted: "There is a higher state of readiness earlier than I've ever seen it."