No surprises next week, says Cullen

12.30pm

Finance Minister Michael Cullen is promising a no-surprises budget next week.

He said today that budgets were important economic milestones and should not be gimmicky or sensation-seeking.

"Everybody is now painfully aware that in the hyper-sensitive environment of current global stock and finance markets, the markets hate surprises," he said in a speech to the Canterbury Manufacturers' Association.

"Once again, there will be no great surprises."

Dr Cullen said he had prepared his budget against a backdrop of one of the strongest economic and fiscal setting in 30 years, but the outlook was the most uncertain and unstable in a quarter of a century.

"It is important not to get too pessimistic, and even more important not to act precipitately," he said.

"The future we face is uncertain, rather than uniformly negative."

Dr Cullen said post-war reconstruction in Iraq might see commodity prices rise and petrol prices fall as Iraq pumped more oil and bought items it needed to rebuild.

Continued instability could have the opposite effect, and the world economy could remain subdued or get some traction if there was more certainty about Iraq.

He said the uncertain future meant there would be "less than ideal" confidence in the budget's forecasts and, regardless of the overall performance of the economy, there was likely to be much more variation in growth between sectors, industries and regions.

"This is not the time for stunts," he said.

"With all the jockeying for position that is going on in the political right, the public is being bombarded with suggestions about how to spend our fiscal surpluses.

"The fiscal surplus is a small difference between two very large numbers...if revenues are just 1 per cent less than forecast, and expenses just 1 per cent more than forecast, the surplus is $820 million less."

Dr Cullen said he was keeping a close eye on the figures.

"We will keep a watching brief and will continue to let the fiscal stabilisers work.

"In the 1990s, governments were too quick to cut spending when things deteriorated, and too quick to dish out tax cuts when the position improved. That made the downturns worse and the upswings overheat."

- NZPA