John Roughan: Centre-left shows commendable fiscal moderation

There's much to dislike about centre-left governments: the ambivalent economics, the social puritanism, indecisive niceness, stakeholders, triple bottom lines, poor grooming, the want of social graces ...

But I do like their Budgets.

It is well past time to ditch the assumption that socialists are less reliable than business types when it comes to controlling public finance.

The moderate left at least has proved itself more fiscally conservative than the right just about every time it has been given a lease on power in this country. And not only in this country. Australia owes its Budget surpluses to a Labor Government. In Britain, the Blair Government, at least until its re-election last year, ran better monetary and fiscal policies than did Thatcher and Major.

And the prize example is the United States where the Reagan Administration had a theory that tax cuts would generate increased revenue and stimulate the economy.

Like most keen tax-cutters, they were not at all interested in cutting public spending accordingly. The Reagan years left a horrendous deficit and a sick economy that sank his successor, George Bush, the hero of Kuwait. Bill Clinton, by contrast, spent more cautiously, covered his costs with honest taxation, generated a surplus that he invested for public pensions and went on to preside over the longest sustained boom in living American memory.

His successor is a disciple of Reagan, only worse. George W. Bush campaigned on tax-cutting promises before the boom ended. Now the Congressional Budget Office expects a deficit of US$246 billion ($430 billion) this year (excluding the costs of demolishing and rebuilding Iraq) and estimates that Dubya's cuts would see the deficit rising to $1.8 trillion over the next decade.

The chairman of the Federal Reserve, Alan Greenspan, has warned of the damage the deficit would do the US economy because the Fed would have to lift long-term interest rates.

The effect is felt everywhere. In his cautious Budget on Thursday Michael Cullen blamed the American deficit for the higher dollar exchange rate faced by New Zealand exporters.

Why, I wonder, does the impression persist that the right is prudent and the left profligate with public money?

The left do themselves no favours in long periods out of power when they support every appeal to public compassion, with seldom a nod to the limits of national wealth. But history records that when the same people have been entrusted with the honey jar they've invariably proved frugal.

Cullen bears more than a facial resemblance to Labour's first Prime Minister, Michael Joseph Savage. In Herald archives the yellowing newspapers that reported the introduction of social security carry constant strictures from Savage that the scheme must be kept within the means of the country's production.

The first Labour Government eventually lost power because it was too slow to relax wartime rationing and the National Party offered more gilt-edged social security.

The second Labour Government lost because it raised taxes in a budget National called "black".

The third came to grief in large part because it began putting tax away for the baby boomers' superannuation. How I wish we had that fund now.

But parents of the baby boom, today's grey power, elected National on a promise to kill the fund at birth and raise the pension immediately to a level the fund would have earned after 40 years.

National superannuation was the universal pension from age 60 that Savage's Government had wanted to introduce but accepted the country could not afford.

It wasn't affordable in 1976 either, as some in the National Party well knew. The economy was feeling the impact of Britain's entry to Europe, the first oil shock and stagflation. National responded by gambling a great deal of public money on high oil prices, and lost.

It took the fourth Labour Government to end Think Big and reclaim state superannuation from pensioners with private means, breaking a pre-election promise. (Muldoon's beneficiaries were adept by then at securing their political interest.)

Typically, National promised to remove the surtax as soon as it regained power. But, to the undying chagrin of grey power, two rare right-wingers who dared to tackle welfare led National to break the promise, too.

Ruth Richardson and Jenny Shipley brought tax and spending into line and sent the Budget into surplus, although Richardson did not survive as Finance Minister to see it. National, deserted by the grey power, nearly lost the next election and Jim Bolger replaced her with a more conventional conservative.

Bill Birch had a dream ride. Spending was under control, inflation had been beaten, the reformed economy was recovering on job-rich investment and immigration, producing a property boom, high dollar and annual Budget surpluses.

So Birch decided to cut taxes. He had a better case than most, having resisted constant pressure to increase spending, and National was looking distinctly lonely in a new electoral system. But it was not the time for an economic stimulant.

Birch was followed briefly by an even more conventional Treasurer, Winston Peters, who had built a new party on grey power.

His mission in office was to restore a universal pension, which he did.

It is still there, and Cullen is now salting away the tax surpluses to build a fund that might relieve my kids of some of the cost of paying for the retired baby boom. National, true to form, promises to abolish it.

If Labour holds its fiscal nerve it could last long enough to put the fund beyond contention. In 50 years I haven't seen a centre-left government last that long. But the Budget was encouraging.