‘No sensible reappraisal of think big projects’

Press, 31 May 1982, Page 2

‘No sensible reappraisal of think big projects’

Wellington reporter

The Government seems unable “to make any sensible reappraisal of its ‘think big' projects" which figured so largely in its election campaign.’according to the May issue of “Business Forecasts."

. Prepared in Wellington by Business and Economic Research. Ltd. “Business Forecasts" is a quarterly economic forecasting service.

New Zealand needed a public sector investment programme, it said. It seemed a pity that many worth-while infrastructure and agriculture projects were not being pursued because they did not meet artificially high real discount rates. “Business Forecasts" echoed the belief of other economic commentators that consumers had embarked on a pre-Budget spending spree to beat the likely imposition of higher indirect taxes and the lingering possibility of a discreet devaluation. •

There would be only a slight fall in the rate of inflation this year, but there would be a more marked decline beginning in 1983.

The number of people registered as unemployed and on special work schemes was expected to remain high, and might rise as much as 75,000 before the end of the year.

There was no sign of any significant increase in employment opportunities, said "Business Forecasts.” 'This situation was not likely to change markedly this year. The international outlook for this year was for a marked slowdown in world

growth, although a slow upturn was stilPexpected later.

"Business Forecasts" said the pre-Budget spending spree masked the underlying trends.

Combined with the upturn in consumers’ expenditure was the continuing heavy investment in inflation adjusted bonds. Household incomes (after tax and other commitments) had not risen sufficiently to permit expansion of both spending and savings. Much of the spending on durables was at the expense of future sales and most of the investment in inflation bonds represented a switch .in savings from other forms — such as savings bank deposits. "Business Forecasts” predicted a 1981-82 deficit of about $lOOO million as opposed to the $2300 million thought likely six months ago. Growth in Government expenditure would be down in 1982-83 as a result of the 3 per cent cut in expenditure now under way. There was the prospect that the net outcome of cuts in expenditure, a legislated wage round, limited tax reform and wage-tax trade off, and a readily financed Government deficit, would lead to a sharp contraction in the economy.

During February, “Business Forecasts" had predicted that a wage-tax tradeoff would eventually need to be legislated for, and this outcome seemed much more likely now. It expected the Government would move very cautiously on a shift from direct to indirect taxation.