Budget with 1990 election wrapper

Press, 27 July 1989, Page 1

Budget with 1990 election wrapper

By

PATTRICK SMELLIE

in Wellington

The 1990 election campaign will effectively be launched this evening with the first Budget by the new Minister of Finance, Mr Caygill. The Budget is expected to be a mix of moderate Rogernomics and a blueprint for social policy changes described by the Prime Minister, Mr Lange, as “radical,” and the most significant changes in the Welfare State since the first Labour Government’s 1938 reforms.

Like 1938, many of the reforms will not come into effect until after the next election, and might never do so if the Government loses at the polls next year. This Budget appears designed as the first sign that the Government still has enough punch in it to turn the tide in the political polls, which have favoured the National Party since early last year.

It will attempt to shore up support among Rogernomics supporters by offering continuing deficit reductions, and the prospect from that of lower interest rates and responsible economic management. Traditional Labour voters will be wooed with the social policy agenda, although hand-outs will be few and far between.

Mr Caygill has already hinted that he will do better than his target of a financial deficit of 1 per cent of gross domestic product, or about $7OO million. An asset sale and S.O.E. repayment programme to reap as

much as $4 billion is expected with partial sales of Telecom, forest assets, and sales already on the books such as the Rural Bank, and the Maui gas contracts, and the Motunui synthetic petrol plant. On the social policy front, the Budget is likely to be more a statement of principles and endpoints, with details emerging over the year ahead. Known and likely changes include:

• A replacement for national superannuation. This is a expected to be a two-tier system, with one part universal and one part income-tested. Part of the funding might be in the form oi

compulsory contributions under a “social insurance” scheme. • A generic benefit system, to bring all benefits — possibly including State pensions — under one, rational umbrella. This is expected to save the Government money and improve the logic of the benefit system. • Reform of the accident compensation scheme, possibly reducing coverage for minor accidents, non-work accidents, abolishing lump-sum payments, and increasing the time off work before benefits are paid. The pay-off for this would be extending the scheme to cover serious illness. Suggestions are made in some quarters that all benefits could become at least partly funded by the social insurance scheme.

• Substantial new funding for early childhood education. • Signals of changes to the way the tax and benefit systems mesh together to try to reduce the impediments beneficiaries face when they start working; On the tax front, the Budget is likely to be less of a shock than in previous years, with this month’s GST and company tax increases dealt with in the March mini-Budget.

Some relief from land tax is almost inevitable, and changes to the superannuation surtax may be outlined, if not implemented immediately. The Budget night hardy perennials — tobacco and alcohol — appear to be safe, although some adjustment of wines and spirits excises may occur.