1979 Budget: seek good news in vain

Press, 14 May 1979, Page 16

1979 Budget: seek good news in vain

By

CEDRIC MENTIPLAY

Comment from the Capital

New Zealand’s greatest optimist, whoever he may be, does not expect good news in this year’s Budget. The international signs and portents have rarely been less favourable, and the indications of internal optimism less discernible. Yet there are those who feel that in his fourth Budget, to be delivered about June 21, Mr Muldoon will have an answer to today’s ills which will not be too painful for the New Zealand community.

The figures are all wrong. The deficit before borrowing for the 1978-1979 financial year was about $1450 million — some $4OO million worse than the figure estimated in last year’s Budget. The discrepancy matches that of the Labour Government in 1975, which was some $251,700,000 more than Mr Tizard’s estimate.

In each of Mr Muldoon’s previous Budgets there has been an improvement in the balance of payments and a small reduction in overseas borrowing. Neither of these improvements is expected to carry forward into 1979-1980. The balance-of-payments defiicit

is expected to increase from last year’s $565 million to $B4O million by the end of this financial year.

The level of overseas borrowing is as much a political as an economic subject, and National members have been roundly critical of Labour’s' borrowing record up to 1975-1976. Last year’s overseas borrowing totalled $521 million. With this financial year’s figure already at $472.4 million for external loans arranged, it seems that last year’s figure could well be exceeded.

There might be more than a fleqjing glimpse of sunshine here, however, in the results of Mr Muldoon’s cash loan experiment. The first issue of savings stock, which closed last December 15, produced a total subscription of $239.7 million from 73,749 applicants. This infusion of money would come to hand at the beginning of this financial year.

The second loan, also covered by Government stock, has just closed, and the stock will be issued on Tuesday. Subscriptions have been heavy, and the loan is expected to be fully subscribed. This means that the

Government has received some $6OO million from within New Zealand. Whatever the effect of these loans on surplus small funds in New Zealand (and there have been the usual dire forebodings), they have given the Government funds it would otherwise have had to borrow — and though the interest rates of up to 13 per cent appear high, they have the advantage of requiring payment internally, and not in overseas currency. Not much is known so far as to exactly where this $6OO million is being spent — but it is worth noting that it is a sum exceeding last year’s total of money borrowed overseas. It is also a sum which, as it affects money required, must have an important bearing on the coming June Budget. The most worrying aspect relates to what is traditionally known as the “invisible account.” Last financial year this showed a deficit of $1086.5 million. Recently Mr Muldoon, not one to mince words, said of this account: “It is in bad shape, and not getting any better.”

“Invisibles” include monies remitted overseas privately for various reasons. The foreign travel tax introduced in 1976 has manifestly failed. It could be withdrawn or increased — and an increase would have drastic effects on some organisations, including the alrehdy-labouring Air New Zealand. Would it be better in the long run to impose still heavier restrictions on the remittance of funds overseas? This could succeed in bringing down the “invisible” deficit — but certainly at the expense of the Government’s political popularity. The relation of money spent to money available is bound to have a shattering effect on departmental estimates. Every year there is a cycle which begins with each departmental head working out what his charge requires — and then seeing his “irreducible minimum” further pared down by Treasury experts, Cabinet committees, and by the Minister of Finance (whoever he may be that year). This year, because of the extra pressures of extemally-

induced financial stringency, the pressures have been more firmly applied. For a long time now, ministers have been warning departmental professional and trade groups against optimistic demands for more funds. The message was given first in the health area, when the then Minister of Health (Mr Gill) put up to Government caucus the option of imposing a basic charge for prescriptions — and was turned down. A similar option is now being tested by the present Minister of Health (Mr Gair), with, I understand, a very different reaction.

Ministers have been giving out for the past month or more that the Budget will prune spending in health, education, and welfare. This has had a curious but predictable result, in that speakers in one “threatened” group have tended to criticise beneficiaries in others. Thus, when the Minister of State (Mr Thomson) warned primary teachers that the Government should not be regarded as a Santa Claus,

teachers replied by threatening direct action, and by criticising the superannuation beneficianries. Fortunately, the responsible teacher reaction was to establish priorities, and to wait and see.

There is no likelihood, whatever happens, that the structure of the superannuation system will be interfered with. Mr Muldoon believes that sufficient adjustment was made when the superannuation payment was made subject to income tax. There is a strong Government repugnance to a suggestion that superannuation payments be limited by the imposition of a means test.

It is appreciated that any limitation in the health, social welfare, or education field will produce an antiGovernment reaction. The evidence indicates that some limitation is essential, merely to balance capability. For the National Party in general, and for Mr Muldoon in particular, the Budget will have two points of crisis: the first after its presentation late in June, the second at the National Party conference in Christchurch a month later.