Budget 09: How the Herald analysts see it

Clockwise from top: Brian Fallow, Fran O'Sullivan, John Armstrong and Audrey Young.

Opinion

Herald business columnist Fran O'Sullivan:

Few surprises
Bill English's first Budget is a bit like its author: Predictable and down-to-earth to the point of boredom.

But with some sly touches that betray the fact that English knows full well he has been persuaded by cruel circumstances to deliver a (Socialistic) Budget that would have made his predecessor Michael Cullen proud.

So the tax cuts were parked as we knew they would be.

The contributions to the Super Fund have basically been mothballed for 10 years. Apart from some $250 million thrown the fund's way this year to bankroll NZ companies and projects that cannot get other funding.

But the Government is still funding Labour's election bribes like the frankly extravagant Working for Families and the student loans scam.

It says it wants to protect jobs and maintain incomes as much as possible during the recession. But in essence it has shied away from taking a real axe to Government spending because it fears a repeat of the 1991-style Mother of all Budgets could cost it the next election.

The "decade of deficits" persists - if in reduced form.

English will be wrestling to control the Government's debt monster though will not succeed for some years yet. But ultimately the trend line flattens out and it will be curtailed.

Will this be enough to avert a credit ratings downgrade?

Standard and Poor's won't be doing victory rolls when they announce later today that they will not be subjecting New Zealand to the ignominy of a sovereign debt downgrade. But we will remain under scrutiny for years to come.

* * *

Political editor Audrey Young:

The permanent diet
It's the skinny budget. Bill English has just put New Zealand on a permanent diet. Even his Budget speech is shorter than previous years.

In line with his fiscal diet, he has cut the amount of new operating spending that Treasury forecast back in December that would be spent in National's first Budget from $1.75 billion to $1.45 billion.

And the new operating spending in his second Budget will be even less, a meagre $1.1 billion.

That has to include any new increases in the health vote - which has been used to getting $750 million extra a year automatically, and the education sector.

As happened with this Budget round, every new cent in the future will have to be justified. What's more, every cent that has been taken for granted will have to be justified as well.

If Government departments and public servants were feeling the pinch as this Budget was prepared, be warned: it will get tougher.

The Golden Weather is over.

The home insulation package of grants is the real feel-good element of the Budget - like Kiwisaver it may find itself over-subscribed.

New Zealand stays in deficit through the five-year forecast period. On the long-term forecasts, the operating deficit (excluding gains and losses) doesn't get back into the black until 2018.

The debt programme balloons to finance the deficits but he achieves the goal of getting the debt track heading back south.

While avoiding a credit ratings downgrade was John Key's primary focus and not Bill English's, all eyes will be on Standard and Poor's bulletin later today.

* * *

Political correspondent John Armstrong:

A suger-coated pill
Medicine time? Well, not quite yet. But it is coming soon enough.

Bill English has dished up a budget which is a bitter pill wrapped in sugar-coating.

He has managed to scrape together enough cash to deliver more in the way of short-term sweeteners than had been expected, boosting spending on such things as hospitals, early childhood education, research and development and even a Prime Minister's Science Prize.

Enjoy it while you can. Because there may be some jam after all today but its bread and water tomorrow and thereafter. English has judged that after nine years of a Labour spend-up it was asking too much for the populace to go cold turkey but the message is clear: it is belt-tightening time.

That is apparent in the spending forecast for subsequent years where even holy cows like health are in for a lengthy period of cost control instead of relying on annual top-ups.

The stiff fiscal elixir has required sacrifices. National's further tax cuts have been deferrred. No surprises there. Neither in the postponing payments into the Cullen superannuation fund. The shock is that the payments "holiday" may well last a decade.

That will effectively gut what has so far been the only politically viable answer to the country's longer-term pension headache.

English's assurances this will have no bearing on future pension entitlements should be taken with a large grain of salt.

Economics editor Brian Fallow:

Delaying the inevitable
It is a Budget which makes the medium term outlook look better at the expense of both the short term and the long term.

If it does what it takes to avert a credit rating downgrade it is hard to quarrel with that.

But in terms of the immediate problem of a deep recession and mounting unemployment it is about as stimulatory as a glass of tepid water.

The Government's operating spending over the next two years will increase by a cumulative $5.1 billion. That is less than it rose in the past year alone ($5.4 billion).

The tax cuts promised for next year and the year after have been canned.

That is $900 million a year some of which at least would have been spent.

Scrapping contributions to the Cullen Fund for the next 11 years will send a chilling signal to babyboomers in particular - the age group best placed to go forth and spend in these demand-starved times - to redouble their savings instead.

Suspending contributions does not reduce the fiscal cost of super itself. Only a change to the entitlement parameters would do that.

All the contribution holiday does is reduce the Government debt track over the medium term at the expense of a corresponding larger unfunded liability further out.

Meanwhile the economic and long-term fiscal case for the tax cuts remains.

It is not smart to rely on 9 per cent of taxpayers for 42 per cent of the income tax take, not when labour is mobile and there is a yawning income gap with Australia and most of the rest of the developed world.

In that respect too, the Budget is a backward step.