Brian Fallow: Cullen's predictions could be correct...or not

Unaffordable and inflationary are two of the gentler adjectives Finance Minister Michael Cullen attached to the National Party's tax plan yesterday.

He accuses National of planning to borrow to fund present consumption, as in Sir Robert Muldoon's day, and says this is inflationary.

"If [Don Brash] was governor of the Reserve Bank and a Labour Government did this, he would have stuck interest rates through the roof," Dr Cullen said.

His argument is that John Key is dreaming if he thinks he can keep within spending limits outlined in his alternative Budget on Friday.

Dr Cullen says the amount Mr Key set aside for all new spending in next year's Budget is about as much as Dr Cullen himself has mentally earmarked for new healthcare spending alone.

If he is right, National would have to cut services or borrow a lot more than it expects, or both.

The extra borrowing would not be for capital expenditure such as roads, Dr Cullen says.

"National proposes to spend $600 million less on roads over the next three years than the Government is. The extra borrowing is all for tax cuts."

Voters have to choose between two reactions to such claims: "He should know" or "He would say that, wouldn't he?"

The blowout in Government borrowing, Dr Cullen predicts, will be "two or three years down the track when we are already forecasting to run cash deficits".

He says this as if those forecasts were something you could bank on.

The reality is that the Government's cash balance - what is left after all its spending, both operating and capital, is deducted from its revenue - oscillates between surpluses and deficits and is almost impossible to forecast.

As recently as last year's Budget the cash balance for the year to June 2005 was expected to be $800 million in the red. In the end it came in at $3.2 billion in the black - a $4 billion difference.

Numbers that swing this much make it hard to say how inflationary combinations of tax and spending and borrowing will be.

Only one man's opinion on this really counts - Reserve Bank Governor Alan Bollard. And he is keeping his own counsel.