Lots of Budget cash available to hand out

By VERNON SMALL deputy political editor

Michael Cullen has distributed more than $500 million in new spending for the coming year, but the man holding the country's purse-strings has nearly $700 million still to play with in his first Budget today.

The Coalition set aside $1.2 billion for new policies for the 2000-2001 year in its March budget policy statement.

But the welter of early announcements and some big-ticket items, such as higher pensions and cuts to student loan interest payments, have soaked up around $529 million.

The remaining $671 million will be allocated to health, education, the "Closing the Gaps" package and measures to boost regional growth and high-technology firms through Industry New Zealand.

Dr Cullen has billed today's document as a sensible, middle-of-the-road Budget. He is expected to announce a surplus of more than $1 billion, with a proportion earmarked to pre-fund the cost of baby-boomers' pensions.

The Treasury will forecast growing surpluses over the next two years.

But the recent sharp downturn in business confidence, which came after the Treasury finalised its growth forecasts, is likely to hurt the forecast track.

The Treasury is expected to include a "stop press" outlining the likely impact of the fall in confidence.

National's finance spokesman, Bill English, said Dr Cullen was forecasting rising expenditure while growth was slowing.

"If the forecast downturn in activity over the next three years is any sharper, the Government will have to significantly revise their fiscal plans, which means the surpluses could be at risk."

He said surpluses would be under pressure from Dr Cullen's colleagues, falling growth rates and the need to put cash into the superannuation fund.

In March, the Government set a cap of $5.9 billion on new spending for its term of office. Until yesterday it had committed about $2.1 billion.

Announcements today are expected to soak up much of the remaining $3.8 billion, leaving relatively little room to move in the next two Budgets.

In some cases, notably the arts package and the West Coast compensation fund, expenditure was incurred in the 1999-2000 year as a booming economy gave the Government more elbow room.

Mr English predicted the Budget would allocate $3 billion in new spending over three years, leaving much smaller levels of new expenditure in the two years leading up to the election.

Some new spending plans have been broadly flagged, but details are still to be released.

For instance, Deputy Prime Minister Jim Anderton's industrial development package is expected to build to $100 million more spending by the third year. About $60 million is likely to be budgeted for mental health initiatives in the next financial year.

It is unclear whether the $15 million contingency sum, set aside for Green Party initiatives due to be unveiled today, will be matched or increased in future Budgets.

The table shows estimated spending based on Government announcements before the Budget.