Editorial: Budget funds sprinkled far too thinly

Michael Cullen faced two challenges in formulating the 2003 Budget. The first was the appropriate reaction to what he characterised as the "most uncertain political and economic situation internationally for a very long time". The second - given his response could only be one of thriftiness - was the heightened need to spend the limited sum available as effectively as possible. The Minister of Finance's Budget passes the frugality test admirably. It flunks the second, however. Money has been dispensed widely but rarely sufficient to make a worthwhile difference.

Dr Cullen has paid due regard to an economic forecast that has not only become bleaker in recent months but more uncertain. Faced with predicted economic growth of just 2.2 per cent in the March 2004 year - halved from the past year's robust 4.4 per cent and reduced from the 2.5 per cent forecast last December - he has cut the Government's cloth accordingly. Even if growth is predicted to rebound to about 3 per cent in the March 2005 year, it is better to play safe than to adopt a cavalier attitude to the many imponderables in the Treasury forecasts. This needed to be a dry Budget - and it is.

It is also, however, a Budget that will achieve little in the areas that it deems worthy of attention. Take, for example, the incentive to entice more low-income earners into work-based superannuation schemes. Employers will be able to apply a lower tax rate on contributions made to superannuation funds on behalf of employees earning less than $38,000 a year. Yet those on low income have to devote virtually every cent of their wages to the slog of everyday life. Saving for retirement barely rates a thought - and still will not.

The shortcoming pervades the Budget. Much is made of "innovative" measures to help small and medium-sized businesses. An advisory group has been established and there is talk of easing the tax and compliance-cost burdens on such enterprises. Yet the predicted drop in revenue attributable to tax simplification for small and medium-sized enterprises is only $20 million. Clearly, any advantage to individual businesses will be minimal.

The Government would have been better, in fact, to spend in larger doses and in a more targeted manner. It has spread its largess thinly and, too often, to little effect. There is nothing in the Budget to make our best and brightest refrain from departing for greener pastures overseas. Another relatively minor boost for research and development will not do that. There is also nothing to provide a dramatic fillip for economic growth. Tinkering is the order of the day; nowhere is there an inkling of a truly friendly tax environment - both for businesses and the individual.

There are also inconsistencies. Measures aimed at tackling drug abuse are given a high priority. The problem is a focus of a $13.2 million programme over four years, and a specialist police team will be formed to deal with the rapid increase in methamphetamine laboratories. But where is a programme to deal with teenage binge-drinking? The overwhelming reaction to last week's late-night law change that increased the tax on light spirits was that the drinking habits of many teenagers would be better handled by an education campaign. The Government appears to have ignored that message.

It has not, however, been able to resist acting on its philosophical distaste for the commercially driven operation of state-owned enterprises. Dr Cullen implies that he intends to rein this in. That bodes ill for the effectiveness of those businesses, both in their freedom of operation and in the calibre of staff they are able to attract. The Minister of Finance was quite right in his preview of the Budget. There are no surprises. But even boring Budgets should make an impact. By sprinkling his spending too widely and too thinly, Dr Cullen has failed to achieve that.