Govt has to find $2 billion —Caygill

Press, 10 February 1989, Page 1

Govt has to find $2 billion —Caygill

By

PATTRICK SMELLIE,

in Wellington

The Government must find about $2 billion in spending cuts or tax increases to meet its Budget targets for the next financial year, the Minister of Finance, Mr Caygill, said yesterday.

Talking to reporters after his first main speech since taking the finance portfolio, he confirmed that the $2.6 billion deficit forecast revealed by the former Minister, Mr Roger Douglas, on Wednesday was correct. Mr Caygill said the Government was confident that gap could be closed but he would not rule out tax increases to do so, saying that would be "arrogant and dishonest." His only commitment on the tax front was that New Zealand tax rates would continue to have a competitive edge on Australian rates. The top personal tax rate in Australia is 49c in the dollar, against 33c here, and the company tax rate is 39c, against 28c in the dollar in New Zealand. He repeated the Government’s commitment to a financial deficit (before asset sales) of 1 per cent of gross domestic product — about $6OO million — in the 198990 financial year.

This year’s financial deficit is forecast to be 2.2 per cent of G.D.P. or $1.4 billion. Mr Caygill said the $2OO million cuts in social welfare spending announced this week by the Minister of Social Welfare, Dr Cullen, were a good start to the $2 billion the Government needed to shave off the projected deficit in the next financial year. A spokesman for Mr Douglas’ office said the $2.6 billion financial deficit projection was up to date at the end of last year and represented a “best-case scenario.” However, high deficit projections from the Treasury are not uncommon several months ahead of a Budget, and Mr Caygill said main decisions on how to cut a further $l.B billion from the forecast deficit would be made in coming months. Some had already been made, he said. The projected revenue from items such as the forthcoming withholding tax on interest were included in the forecast. Economists contacted yesterday said the $2 billion gap strengthened the likelihood of tax increases because Mr Caygill had shown little inclination to make big major spending cuts. In his speech, Mr Caygill

appeared to suggest that some of the deficit reduction could come through the natural growth in the tax take which would occur if the economy picked up in the year “If we are to afford the services we would wish to provide, there is only one answer,” he said. “We have to earn more. We are on the brink of achieving that now.” Mr Caygill defended the Government’s record on spending control, while ruling out further big cuts in areas such as health and education. "We consider that expenditure in these areas is an investment that we make no apology for,” he said. “Those who would urge us to cut further into Government expenditure should be reminded that it is education, health, and welfare that we would be cutting into. “I am not saying that those areas are sacrosanct,” he said,

referring to Dr Cullen’s cuts, and health spending constraints during his time as Minister of Health. "But let me repeat as Minister of Finance what I said as Minister of Health: there is not $5OO million to be squeezed,out of health — not unless you close half the hospitals, or make people pay for their treatment.” But the Government had made big spending cuts with its corporatisation policy. There had been staffing cuts of 27 per cent in the public sector as a whole under the Labour Government, and a 40 per cent staff reduction in the core public sector — that is, non-commercial operations. “I challenge anyone to demonstrate the claim that Government has failed to set its house in order,” he said. Mr Caygill said New Zealanders’ mental attitudes were one of the main blocks remaining to economic recovery. New Zealand was “perilously close to success,” he said. “I say perilously close because that success could yet be jeopardised by our mental attitude. “We have everything going for us, except the right attitude,” he said.