John Armstrong: Cash handouts in bag of tricks

COMMENT

Hey, big spender - you can already hear the cartoonists sharpening their pencils in anticipation of next Thursday's Budget.

And contrary to Michael Cullen's fears, they will not be caricaturing the Finance Minister as Scrooge McDuck atop a mountain of cash, a perception which annoys Cullen intensely as he struggles to convince non-accountants that his surplus is nowhere near as big as a simplistic reading of the figures suggests.

Cullen's fifth and most significant Budget is more likely to be greeted with the headlines reserved for his Australian counterpart, Peter Costello, who 10 days ago unveiled a Budget containing $37 billion in giveaways over a five-year period.

"The mother of all spend-ups," screamed the Sydney Morning Herald.

Cullen's Budget will echo the Australian Treasurer's in delivering big cash handouts to low- and middle-income working families with children, along with incentives to drive beneficiaries back into the workforce.

But when it comes to mothers and budgets, there will forever only be one mummy of them all - Ruth Richardson's 1991 epic.

Cullen's may yet be the big daddy, although he has been careful not to over-hype it, not least because he does not want to suddenly find himself categorised as a spendthrift.

This year's lead-up to Budget day has been a different affair.

In previous years, Cullen has stressed that the Budget will be boring. And just about every time, he has been absolutely correct.

The playing-down of the document has been enhanced by the advance leaking of key elements, enabling Cullen to put the Budget day focus on him as a master of fiscal rectitude; in short, a safe pair of hands.

Not this year.

The shutters have come down. Despite opponents trying to tease stuff out of him, Cullen has largely curbed his natural inclination to say more than he wants to.

This is partly because this Budget is hideously complicated. Everything in it interlinks. It has to be seen in its totality to be coherent. And that can only happen on Budget day.

But for the first time in a long time, Labour wants a "big bang" effect on Budget day. Labour wants to jolt voters.

Although the blandly titled Future Directions package of income assistance was in the planning long before National's surge in the polls, it has now taken on an additional role as a political circuit-breaker; a way of seizing back the initiative.

Cullen will get his big bang.

The clue lies in his billing the Budget as the "largest single set of changes to the benefit system and assistance to families since the benefit cuts of 1991".

That suggests it will far outstrip Bill Birch's 1996 package that injected an extra $100 a week into a $25,000-income household with four children, and $120 into such a household on $45,000.

Cullen's package will also lift the incomes of beneficiary families. But the incomes of working families will be lifted even more to increase the "wedge" between benefits and paid work. And that extra assistance will extend from families on low incomes through to families on quite high incomes with a lot of children.

The extra assistance will presumably be delivered primarily through boosts to the accommodation supplement and enhanced tax credits.

There will be bigger childcare subsidies to make it more worthwhile for partners to work, and cash incentives so beneficiaries can work without losing too much of their benefit.

The big unknown is the extent to which the hotch-potch of delivery mechanisms and the clumsy benefit structure will be streamlined, although the word is changes will be evolutionary, not revolutionary.

It will be easy to get lost in the detail.

But for the average punter, it will all boil down to one thing - families will be able to work out how much extra they will get in income assistance over the three-year phase-in.

And, politically, that is what matters.

Will it work for Labour?

For starters, the big bang is designed to show that Labour is still in tune with what people want despite its recent wobbles - and a sharp reminder to those on low and modest incomes that Don Brash's single-issue message on race is secondary when it comes to preserving living standards, and Labour is their better bet.

But Labour is not only seeking a fresh start. The Budget is payback time for party loyalists who have waited five years for this.

It is also the culmination of five years' work by Cullen, Helen Clark and Steve Maharey, who are wedded to a strong social democratic ethos to deliver social assistance to the less well-off as fiscal conditions allow.

And, perhaps above all, the Budget will take the fight to Brash.

National will argue that Cullen is merely giving people back the cash he has taken off them.

National will argue that it is better not to take the cash in the first place and tax cuts are the better option, rather than making people reliant on Government handouts.

But it is Cullen who controls the Treasury coffers.

National's ideological preference will run smack into the reality that extra cash will be flowing into people's pockets by election time next year.

National risks playing the electoral equivalent of Russian roulette if it tampers with the incomes of those voters, who essentially determine elections.

One high-level Government source puts it succinctly: "I cannot see anybody in middle New Zealand not wanting what we are going to do ... These are things people will say are the right things to do."

Not surprisingly, Brash is thus shying away from scrapping Cullen's package despite the tax-cutting inclination of colleagues.

However, leaving Cullen's package in place would leave National with little "fiscal headroom" in terms of revenue to cut taxes beyond Brash's priority of slashing company tax, the one thing on which Cullen refuses to budge and where he is vulnerable to criticism.

Beyond company tax, National cannot really commit to anything firm until it sees the figures in the Budget.

The writing of coherent policy requires National to wait until it has digested the Budget figures and decided whether to retain the super fund into which Cullen will pour another $2 billion this year.

But Brash will be under pressure on Budget Day to say exactly what National would do differently.

And, following the shambles over whether the party would change the anti-nuclear policy, the last thing National can afford is more weasel words.