Caygill brakes Rogernomics; looks to election

Press, 28 July 1989, Page 1

Caygill brakes Rogernomics; looks to election

By

BRENDON BURNS

in Wellington

The last Budget of the 1980 s last evening heralded the promised breather from full-tilt Rogernomics, with changes to superannuation, welfare benefits and early childhood education funding to be spread over years to come.

Mr Caygill delivered his first Budget as Minister of Finance like an old and steady hand, producing the expected financial deficit of $729 million. A surplus of $3.1 billion after asset sales is forecast. With an eye firmly on next year’s election, his Budget includes a revised national superannuation scheme similar to that proposed by the National Party. A gradual move next century to increase the age eligibility of superannuitants from 60 to 65 years is common to both. In one of the Budget’s few similarities to the vision of the Prime Minister, Mr. Lange, of a 1938 Labour Budget, a return to targeted income tax in pledged. About 7.5 per cent of income tax will be earmarked to fund the guaranteed retirement income —- recalling the Social Security Tax abolished 20 years ago. An election sweetener is offered to those already retired and having their private pension hit by the national superannuation surcharge. From April, 1990, half their income from approved private schemes and life insurance payments will be exempt from the surcharge. Any Immediate hopes of a bipartisan future for superannuation were dashed by the Leader of the Opposition, Mr Bolger. He criticised the Government’s proposal to gradually reduce national superannuation payments to the level of other benefits. Mr Bolger said the Budget was not decisive enough to get New Zealand moving. Mr Caygill has used the Budget as the first instalment of a threeyear programme. By 1992, he has targeted an Inflation rate of nil to 2 per cent, mortgage rates In single figures and unemployment down to 100,000. Registered unemployment is forecast to peak this year at an annual average of 158,000. The medium-term time-frame offered by Mr Caygill includes the promise of a restructured

Analysts suggest this will immediately push down Government stock rates and might feed into domestic interest rates. No dramatic new announcements are contained about asset sales, but the Budget asserts the plan to continue with sales already declared. A tight fist on "Government spending is inherent in the Budget. Two departments — the Ministry of Energy and the Department of Lands — will be abolished, and accommodated in existing departments. Three departments — Customs, Justice, External Relations and Trade — have had their budgets capped, similar to the restraint imposed last March on the Ministry of Defence. The Health Department has. been told not to increase spending on pharmaceutical benefits and Labour Department employment schemes are held at previous funding levels. The cap on employment scheme spending is imposed in spite of the forecast of increased unemployment. Mr Caygill is pinning his hopes on economic recovery to turn around unemployment.

accident compensation system to include sickness and a single, universal welfare benefit. Details are vague and April, 1991, has been set for implementation. Employers seem likely to be expected to face some of the cost of extending the A.C.C. scheme to sickness. Mr Caygill has, perhaps surprisingly, hit the pockets of drinkers and smokers in his Budget, nudging the price of a jug of beer and packet of cigarettes up about 10c each. While there may be public bar grumbles, he has produced a Budget which has won support from his predecessor, Mr Roger Douglas, and the Prime Minister, Mr Lange. Mr Douglas endorsed the financial deficit at 1 per cent of gross domestic product, better than what he had been able to achieve. Education, Mr Lange’s portfolio, gained a 12 per cent increase in funds. Winners were parents with

young children in pre-school institutions, who face substantial fee reductions as Government grants increase gradually from February. Women are given the boost of gaining full control of Family Support, with the threshold upped to $17,500. A $l4 million programme for national cervical screening may also enhance the Government in the eyes of women voters. Tertiary students might not be pleased with the Government for attempts to replace the defeated tertiary loan with stiffer fees, but sizeable boosts in weekly allowances are promised for next year. Farmers will gain most from the 5 per cent cut in diesel tax from November. They, along with mortgagepaying homeowners, may see some welcome reduction in interest rates after the Budget.

The Labour Party’s president, Ms Ruth Dyson, gave immediate strong support to Mr Caygill’s first Budget. She said it first pign that benefits were going to flow from economic restructuring. That will be the view of the Prime Minister, Mr Lange, who had before the Budget declared it would give the same sort of choice that Labour’s first Prime Minister, Michael Savage, had offered in 1938. That election heralded the Welfare State. In August last year, while Mr Douglas was still Minister of Finance, 'Mr Lange had said New Zealand needed a breather from the pace of reform. This pause — and the promise of accompanying social pay-offs to compensate for five years of restructuring — was signalled last evening. Voters will decide whether the Government has regained its breath or just found new bluster.

Mr Caygill has opted to use the proceeds of asset sales to reduce internal debt, rather than foreign loans.