Surplus foresight pays off, says Cullen

Finance Minister Michael Cullen says he would now be preparing a "black Budget" if he had yielded to calls to cut taxes.

"We are now seeing the reward of banking the surpluses of recent years," Dr Cullen said in a pre-Budget speech to the Canterbury Manufacturers Association.

As a result there was no need to risk worsening the downturn by slashing spending and no threat to the capital investment programme.

"Had I heeded the many calls over the last three years to use the surplus to cut taxes I would now be preparing a black Budget, one that cuts back on roading and transport investment, rolls back progress on things like industry training and scientific research, and attempts to make cuts in health and education."

Dr Cullen said 2006 would be a year of very flat economic growth but with the dollar falling most commentators saw the economy recovering next year, though rising world oil prices posed a risk to that scenario. There was likely to be another very strong operating surplus in the current financial year, which ends next month.

By the end of February - the most recent figures available - the surplus was running at $6.6 billion, $2.6 billion ahead of forecast.

But this was likely to be the last big surplus for some years, he said.

And the cash position, which as well as operating spending reflects capital items such as roads and contributions to the New Zealand Superannuation Fund, would be moving from a net inflow into the Government's coffers while the economy was going strong to a net outflow.

The Government was forecasting cash deficits totalling about $7 billion over the next four years, which would would require additional borrowing, he said.

Meanwhile, Dr Cullen announced that as of March the Government's financial assets exceeded its debts for the first time since net debt records began in 1972. It is now $400 million in the black. That is the extent to which the Government's debt is exceeded by money in the bank, marketable securities, student loans and the assets of the New Zealand Superannuation Fund.

"It means we are in an excellent position to face both the expected slower growth in the short term and the rising spending pressures expected from an aging population over the more medium term."

The May 18 Budget would deliver on election promises made by Labour and the parties supporting it in Government, he said.