Dr Cullen's Budget placebo

By VERNON SMALL, deputy political editor

Finance Minister Michael Cullen has delivered an election-year Budget promising to transform the economy but with no time frame for reaching his own 4 per cent target.

The document lived up to its low-key billing, unveiling a strong economic and fiscal position but little new spending that had not been well-signalled.

The showcase was a plan to pump $400 million into tertiary education over four years and reform funding to encourage the mix of graduates the Government wants.

Treasury figures show the economy rebounded strongly from the post-September 11 jitters, delivering the Coalition's third straight surplus.

Growth is forecast at 3.1 per cent in each of the next two years but slowly falling after that. The surplus is picked to reach $2.6 billion this year, $2.3 billion next year and more than $3 billion further into the future.

But Dr Cullen avoided the temptation of a big splurge, staying within the Government's self-imposed limit of $6.12 billion extra spending over three years.

He said his third Budget demonstrated the Government's responsible management of the economy and its accounts. His central theme was a commitment to "economic transformation" through reform of tertiary education and extra spending on skills and industry development.

"It is, most definitely, not an election-buying Budget. It may well be an election-winning one," he said.

But nowhere in the Treasury's forecasts over the next 10 years does the economy grow at more than 4 per cent, the level needed to put the country back towards the top half of the developed world's league table.

"I haven't put a date on it. I don't think it is sensible to put a target date on a long-term sustainable growth rate," Dr Cullen said yesterday.

He said he needed to convince "others" that 4 per cent was sustainable - an apparent reference to the Reserve Bank, which puts sustainable growth no higher than 3 per cent.

Dr Cullen spent a large part of his 45- minute speech outlining the Government's achievements over the past 2 1/2 years and attacking National's tax cut plans.

In reply, Opposition leader Bill English described the Budget as boring and a missed opportunity to cash in on the best economic conditions in a generation. It offered no support for families or business and did not address the needs of health and education.

"It has blown the opportunity in a welter of acronyms. We have heard about the knowledge wave and there is barely a ripple of new ideas," he said.

He asked what social lobby groups would have said if National reported big surpluses without lifting welfare rates or spending more on health and education.

The Budget includes a total of $957 million of new spending next year, dominated by more than $400 million for health and $100 million for tertiary education. Included in total new spending is a $230 million provision to cover costs that may arise in the next 12 months, including the secondary teachers' pay settlement.

The Government also signalled a crackdown on 400 private tertiary institutions, which providers warned could mean niche-area or low-income students losing access to higher education.

A new funding framework for the tertiary sector will effectively prune the number of privately run programmes and give preferential treatment to public institutions such as universities, polytechnics and wananga for the first time in more than a decade.

Dr Cullen said health was taking an increasingly large slice of the cake, with expenditure on the sector growing from 5.2 per cent of GDP in 1990 to 6.8 per cent in 2004. There had to be a limit to this rate of growth.

He warned that the increases were not "an opening bid that may be responded to with higher bids".

"The sector and the Government will need to co-operate to ensure spending is kept within the forecast path."

The only significant change to tax was an assurance that tax rates on superannuation savings for low to middle income earners would be lowered in 2004.

Dr Cullen said he would either cut the tax on employer contributions for those earning less than $38,000 or extend the present 6 per cent concession for those earning more than $60,000 to all income earners.

But changes to the international tax regime to encourage investment and skilled migration required further work, and Dr Cullen said there would be another round of consultation with the private sector.

Tens of millions would be spent to ensure broadband technology was introduced throughout the country giving fast internet access to rural areas especially.

The nationwide project follows a $300,000 fast internet access pilot in five regions, including a Far North proposal using wireless technology.

Far North Development Trust chairman Chris Mathews said: "It's as fundamental to the development of the regions as roads, rail and electricity."

A $349 million conservation package spread over 10 years will be used to pay for improved maintenance and cover depreciation of DoC huts, tracks and tourist facilities. But most of the extra money will not be available until after 2007.

Two biosecurity threats are listed for the first time, one coming with a possible price tag of $30 million.

That's the amount the southern saltmarsh mosquito could end up costing in healthcare over the next five years if the Ross River virus becomes established here, according to the Ministry of Health.

The other threat comes from the painted apple moth, which has already soaked up $11 million in eradication costs.

The Government's new super scheme, to partly pre-fund the cost of baby-boomers' pensions, will receive another $1.2 billion next year.

The fund is forecast to be valued at $8.9 billion by 2006.

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