THE PRESS FRIDAY, NOVEMBER 9, 1984. Brave try from Mr Douglas

Press, 9 November 1984, Page 12

THE PRESS FRIDAY, NOVEMBER 9, 1984. Brave try from Mr Douglas

The Labour Party’s first Budget for nearly a decade is a brave attempt to square the circle, to meet election promises of help for those with the lowest incomes while also providing incentives to expand and improve New Zealand’s economic performance. In the short term, at least, it fails. The farming community, still the most important sector in New Zealand, faces a clutch of discouragements to further investment. Elderly people who have been workers and savers, rather than spenders, face new taxes. Those on higher incomes, especially those without dependent children, will pay more income tax. Everyone will soon be paying more for a variety of goods and services. But this is not a Budget to be judged by its immediate impacts. The Prime Minister, Mr Lange, and the Minister of Finance, Mr Douglas, promised a Budget of “restraint and responsibility,” a Budget that would be “tough but fair.” Many New Zealanders will be worse

off in the next few months from the effects of higher prices for transport and energy, and higher taxes on such items as liquor and cigarettes. That situation need not be permanent. Working with limited time and with severe restraints on its range of choices, the new Government has made a start on its avowed intention to “return New Zealand to economic reality,” and to address fundamental imbalances in the economy. Some of last night’s painful measures are intended to be temporary, to do no more than set directions for much more sweeping changes next year. However tough the impact may seem in the near future, it is difficult to argue with Mr Douglas’s intention to adjust the charges for such things as electricity and road transport so that consumers meet the true cost of production. Nor, in the interests of longer-term economic health, is it sensible to resist the removal of State support from industries that would otherwise be uneconomic, even though these may include some that have provided New Zealand’s traditional basic exports. Mr Douglas has felt obliged to honour promises to help families on lower incomes. He has been obliged to do so while also attempting to lower the Government’s internal deficit. He has avoided an excessive display of Robin Hood methods that would have taken yet more from those on higher incomes. Eventually, if last

night’s promises are honoured, a new system of taxation on consumption will be in place to relieve the pressure on income tax. In the meantime, extra revenue had to be found, and cuts in State spending had to be made where possible. The result is unsatisfactory. Many will accept it if these are truly temporary expedients in a wider plan. The real tests are still to come. Generous assistance to those with families, ahd those on lower incomes, is intended to take some of the sting out of the new round of wage bargaining. That may turn out to be wishful thinking, but Mr Douglas backs it up with indications that employers will be penalised if they give in too easily to demands for substantial wage increases. Employers have had years of knowing that the State was ready to intervene to help out in the face of difficult wage

bargaining. Now, it seems, a Labour Government wants to let a spirit of private enterprise play through wage negotiations. The Government is optimistic, too, that its measures will not add to inflation. In the short term, a wide range of prices must rise, hot only because of the end of the price freeze, .but because of higher charges. The hope is that once these increases have been accepted and absorbed, they will turn out not to be the first twist of a new spiral, but merely a “one-off’ increase. Those least able to meet the increases are being helped to do so. This adds up to a rough kind of social justice that may not go far enough to satisfy many of Labour’s supporters. Mr Douglas could hardly have done less, but that does not make the price increases faced by everyone any more palatable; nor does it guarantee that prices and wages can be restrained by a mixture of market forces and good sense.

For all that, the Budget is a generally realistic approach to New Zealand’s plight. Much thought is being given to a longer term than the period up to the next Budget, or even to the period up to the next General Election. An attack has been made on the expanding State debt; higher employment is promised, and may be possible, without any undertaking to achieve full employment. The Budget builds on the previous Government’s attempts to reduce expectations of high inflation. In a variety of ways, an attempt is being made to encourage a shift of resources into those areas most likely to produce profits and jobs in competition with other countries. Anomalies have still to be sorted out. Mr Douglas remarks that in ensuring protection for vulnerable groups in the community, the Government must also minimise disincentives to work. How this might be done, especially when children are being turned into a cash crop for those on lower incomes, remains to be shown. For a Labour Government, the Budget detail abounds in curiosities. Milk will be dearer; a charge is being made for prescription medicines; a variety of fringe benefits enjoyed by. many people, including many Labour supporters and many State servants, will be taxed. Employers are to pay the tax. Many are likely to take a hard look at the “perks” they provide.

The most important element in the Budget remains no more than a statement of intention. Mr Douglas proposes a goods and services tax — a GST rather like the VAT or value added tax of countries such as Britain. He intends it to be in place by April, 1986, a little over a year away. Such a change could be the most important in New Zealand’s tax system in this century. To move the tax burden away from incomes and on to consumption could change the country’s attitude to work, to investment, and to productivity. Such a change is a challenge that previous Governments have been reluctant to grasp; certainly none has been prepared to make a definite commitment. In this and a good deal else that he announced last night, Mr Douglas deserves points for his courage. The success of his intentions remains to be proved.