John Armstrong: Budget likely to be stingy effort

Bill English. Photo / Sarah Ivey

Bill English's upcoming Budget is unlikely to bear much resemblance to Ruth Richardson's 1991 blockbuster "Mother of All Budgets" - at least in terms of radical and sweeping policy changes.

But in terms of sheer miserliness the document that English delivers on May 19 now looks like becoming the closest thing in matching the stinginess of Richardson's magnum opus in the two decades since.

Over only weeks, this Government has twice shifted its position on how much new money will be available for spending initiatives.

It first trimmed its projected cap on new spending from $1.1 billion for the next financial year back to $800 million. Now it is saying there will be about $600 million to $800 million extra for health and education, but that money will have to be found from "reprioritising"programmes in other areas. In other words, spending cuts.

The big difference is Richardson's Budget was produced in the year after an election. Even then - and despite numerous u-turns on its contents - it nearly killed the Bolger Government.

English's third Budget will land a mere six months before an election. Hence a degree of nervousness in the Beehive, even though last month's earthquake has meant - as John Key put it yesterday - everything changed at 12.51pm on February 22.

The question is whether once again putting the squeeze on Government departments which have received no extra funding over the past two years will finally see a cutback in services - and this side of the election.

The Government is clearly gambling that will not be the case. But it is softening up voters to a paring back of so-called "middle-class welfare" by removing the entitlement of large, wealthy families to Working for Families income top-ups while stopping interest-free student loans.

But whatever political capital spending cuts burn up - and National has quite a lot in reserve - such clamps are clearly seen as politically preferable to hiking taxes or introducing a special levy to meet the cost of rebuilding in Christchurch.

The Prime Minister has ruled out a levy on the grounds of not wanting to snuff out prospects for economic recovery across the rest of New Zealand. He says such a levy would also necessarily hit middle-income earners, as well as high ones.

But politics is a factor. Though Opposition parties such as the Greens back a levy, its introduction could end up being widely seen as a reason why National should not have cut taxes in the first place, even if the last round of such cuts was fiscally neutral.

Moreover, while the rest of the country may now be of a generous disposition towards helping Christchurch, the Government is wary about how long that mood will persist.

Key gave a hint of that thinking when he said some major capital projects in Auckland would not be put on hold. In rebuilding Christchurch, the Government was not going to let Auckland grind to a halt.

Keeping to an even tighter fiscal stance also puts pressure on Labour to justify how it would find the money for its extra spending plans.

National believes it has the advantage over Labour when it comes to the public's view of which party is best at managing the Government's books. Earthquake or no earthquake, it is not an advantage it is willing to surrender.