Next Budget will be 'uncompromising’

Press, 29 May 1985, Page 3

Next Budget will be 'uncompromising’

By

MICHAEL HANNAH

in Wellington

An uncompromising Budget that would “hold course” and do nothing “silly” was promised yesterday by the Minister of Finance, Mr Douglas. The Budget would hold little relief through extra Government spending for the pain caused by last year’s Budget, he said. A blowout in the Government deficit or an “unrealistic” wage round would be "silly.”

He admitted that the rising inflation rate and interest rates were unpopular but argued that the alternative would have been a huge increase in overseas debt and higher unemployment in two or three years. Addressing the Hutt Valley Chamber of Commerce, Mr Douglas said his Budget this year, due in less than three weeks, would not be extravagant, but responsible. It would bring the deficit below the $2.2 billion figure forecast by the Treasury, and it would allow “modest” increases in spending in some areas, but at the expense of reductions in programmes the Govern-

ment deemed to be of lower priority. "That is one lesson the previous Government did not learn, that the funds for increased spending must come from somewhere. That somewhere has to be increased taxes or reductions in other programmes,” he said.

The Budget would show that the Government was serious in its resolve to rejuvenate the economy. “If there is one overriding theme in this year’s Budget it will be that New Zealanders have it in their capacity to secure better living standards in the medium term provided we — and I mean all of us — don’t do anything silly,” he said. The Budget would say that the “years of decline” had been arrested but by “our own efforts and by our own restraint.”

Mr Douglas said there had been criticism of last year’s Budget that the Labour Government’s economic changes were too fast and were causing difficulty and pain for too many people. “in response to that I would say that New Zealand’s economic decline had become so fast in recent

years that decisive and rapid action was necessary to arrest that decline, turn it round, and lay the basis for future growth,” he said. “It is true that things are pretty tough in some areas at the moment. Nobody likes to see interest rates at their present levels. The rate of price increases is higher than we or anyone else would like it.” The “other side of the coin” was that a burst of inflation was not surprising after a 20 per cent devaluation, “necessary” increases in Government charges, and the end of “one of the longest freezes in the history of the Western world.” Mr Douglas said he could have kept on the network of controls and artificially suppressed inflation and interest rates.

“It would have been very easy to keep inflation at low levels. No devaluation, no changes in Government charges. The trade-off for this low inflation would have been about ?2 billion or ?3 billion a year in overseas borrowing to support the overvalued exchange rate,” he said. “We would also have lost a few thousand jobs as the private sector lost faith in

the credibility of the Government policies.”

This would have been the “easy option,” Mr Douglas said. “No hassles now, but two or three years down the track all we would have to show for it would be a massive increase in overseas debt and an industrial structure even more out of date.”

The Government’s policy of no more overseas borrowing this year meant that any future increase in export receipts could go towards improving the standard of living rather than paying interest on debt.

there had also been “spectacular” growth in employment, the fastest since 1974, Mr Douglas said. A programme was in place to reduce the fiscal deficit, and this would in turn help to lower interest rates and lower inflationary expectations. There was the prospect of a much improved balance of payments.

“In short, for the first time in 10 years, New Zealand has the realistic prospect of sustained non-infla-tionary growth. To achieve that all we have to do is hold course, and not do anything silly,” Mr Douglas said.