Editorial: Cullen to be praised for frugality

Budget Day is always a moment of national reckoning. It is the one day that many people who pay little attention to the economy at other times cast an eye over the picture the Minister of Finance has presented and weigh it against the response of sectoral voices and their sense of their own welfare.

Today the report Michael Cullen presents will be pleasant and probably cautiously optimistic. The economy has enjoyed a year of unexpectedly strong growth, continuing like Australia to defy the long international slump.

The growth has produced significantly more tax revenue than the Treasury expected even six months ago and the costs of welfare have been less. On balance, Dr Cullen is expected to budget for a surplus of about $4 billion in the coming year.


In the circumstances, that would be a considerable credit to him and his colleagues. If this Government was going to turn into the profligate spender that many expected, it probably would have begun to happen soon after its second election. Its first term was dominated by the determination to win a second. It was a quest for administrative credibility which required conspicuous fiscal caution. Safely re-elected with the economy running well, the Government might have loosened the pursestrings more than it has.


It might yet do so in the Budget this afternoon. The fine print will require careful reading. But everything Dr Cullen has said suggests he has learned the lessons of history. He sees himself practising Keynesian management as it ought always to have been. He set out to balance the Budget across the economic cycle, avoiding commitments in the good years that would deepen the deficit in the downturns.


By now the good times have lasted longer than anyone expected. Pressure must be mounting within the Labour caucus to spend a good deal of the annual surpluses. With an electricity shortage pending, a railway retrenching, roads congested and a health service still turning away patients on waiting lists for surgery, demands are coming from across the political spectrum for renewed public investment in traditional infrastructure.


It falls to Dr Cullen to remind us all this afternoon that the surplus, as always, is not money in the bank. It is a prediction built on officials' best guess about economic conditions over the next year. They are often astray and the international outlook at present is, in Dr Cullen's view, more opaque than usual. He refers to the longest sharemarket slump in 50 years, low investor confidence, uncertainties after the war in Iraq, low forecast dairy returns, the effects of Sars on travel and trade, the consequences of dry, cold weather for farm production and power supplies.


This week, unwisely for a Finance Minister, he declared concern also about the rising exchange rate, although quickly observed that the Reserve Bank is lowering interest rates accordingly. It is to be hoped that his Budget will not cause the bank to change its mind. Interest rates are a far safer stimulant than public spending that, once committed, is hard to reverse.


As usual, many of the Budget's gifts have been announced in advance, and a rather sneaky tax increase on some liquor has been enacted. It is hard to know what the Government imagines it gains from treating the public like fools. The early gifts are forgotten by the time the full package appears, but the tax grab is remembered.


If Dr Cullen is as good as his word, and the economy remains robust, he will salt away a good surplus for the superannuation fund. And already he has dispelled the idea that Labour's Christmas is coming next year. He has earned by now some good fiscal credentials. But they are on the line again today.