Brian Fallow: Soft spot covered in timely package

COMMENT

Dr Cullen's Budget makes economic sense. It is affordable, timely and well targeted.

Even with the Working for Families package, Budget surpluses are forecast to remain above 3 per cent of GDP over the next four years.

That is twice what is needed to cover contributions to the New Zealand Superannuation fund, and leaves a decent buffer in case economic growth and therefore Government revenue turn out to be weaker than expected.

The economy is crossing over from a period of above-average to a period of below-average growth.

The depth and duration of that soft spot will be limited by the Budget's boost to 300,000 families' incomes, almost all of which can be expected to flow to consumer spending.

That is part of the answer to the claim that there is nothing in the Budget for business.

A more enduring benefit, hopefully, will come from the fact that it is intended, among other things, to boost the supply of labour both by increasing incentives to move from welfare to work and by childcare measures designed to make such a move easier.

With the unemployment rate at 4.3 per cent and the labour market as tight as a drum, such moves are as timely from an economic point of view as they are desirable from a social point of view.

The potential resource is substantial: More than 300,000 people or 13.5 per cent of the working-age population are on a benefit.

But business is crying out not just for labour but for skilled labour. The Budget initiatives on the skills front were modest.

In the long run, just as we pay a price for neglecting physical infrastructure like roads or the national grid, it makes no kind of economic sense to tolerate the potential waste of human capital implicit in the levels of child poverty we have.

One child in four lives in a family reliant on a benefit.

If poverty is defined as 60 per cent of the median disposable income, 29 per cent of children are below that threshold. Dr Cullen claims the package will cut that to 20 per cent.

Better than nothing.