THE PRESS FRIDAY, JULY 28, 1989. A sensible Budget

Press, 28 July 1989, Page 12

THE PRESS FRIDAY, JULY 28, 1989. A sensible Budget

Mr Caygill, the Minister of Finance, has not chosen the flamboyant gesture for his first Budget. There is no attempt to buy votes for next year’s election. There is no attempt at radical reform, except in the superannuation plan — and this is barely radical. There is no attempt to depart from the course the Government has set over the previous years. In brief, the Budget is one of continuing the reforms that have already been set in train and of rationalising some of the messier administrative, aspects of the economy. Many another successor of the radical and strongwilled Roger Douglas might have been tempted to demonstrate dramatically that this was a Budget on which to stamp a new style. Mr Caygill has properly, and typically, acted rationally and sensibly, leaving his deeds to speak louder than his words. Yet in doing just that Mr Caygill has probably established a reputation for independent action. Some feared that there would be a substantial rise in spending on social services. Others hoped for that. Spending on social services has been increased considerably, but with a number of qualifications, not .• all of which are immediately obvious, that means the spending cannot be described as throwing money at problems. Mr Caygill has been at times described as Mr Lange’s man, meaning that he would favour big increases in social welfare spending. Leaving aside the question of whether this is an accurate view of Mr Lange’s position, Mr Caygill has demonstrated that he is his own man. Mr Douglas had credibility with the public as no other Minister of Finance in recent years had credibility. His was a hard act to follow. In this Budget, Mr Caygill has probably gone a considerable distance towards establishing his own credibility. That should help stabilise the investment climate. One of the awkward factors in the investment climate on which economic growth and employment growth depends has been uncertainty about Mr Caygill. Last night’s Budget should have removed that from the economy. This is not to say it is a dull Budget. It is far too intelligent for that. Its focus is on the medium term and the Government has for the first time published three-year fiscal

projections. The thrust of the Budget is to achieve the objects that the Government has set for the country.

Much will depend on whether the calculations are right. The Government deficit, the difference between the Government’s revenue and its spending, has been reduced markedly and does not amount to three-quarters of a billion. But, in arriving at that figure, the Government has calculated on an extra billion from personal income tax. Farm incomes should rise substantially and this could account for an increased tax take. Perhaps more people will be in work and also contribute to the extra billion. That would be marvellous news for the country, though Government projections show higher productivity coming from investment in machinery rather than in people. It must be hoped that the Minister is not basing his calculations too much on the view that he has been advancing for a long time that the economic indicators are now right and that it is simply attitudes which prevent the economy from taking off. Economies do not necessarily respond to the blandishments and forecasts of Finance Ministers, however well argued. The size of the deficit relates directly to the amount of money that the Government will need to borrow and this affects interest rates because it determines how often the Government seeks money and how much it seeks. If the Government has got the deficit wrong through relying on hope, economic recovery could be delayed badly. However, Mr Caygill’s generally responsible approach suggests that he will have done his homework and his forecasts of expenditure and revenue for the next three years are meant to be a strong message to encourage lower interest rates. Although Mr Caygill has produced a Budget consistent with the general aims of Rogernomics, he has given no indication of more of the recurring upheavals Mr Douglas promised. Like many other revolutionaries, Mr Douglas had his day and did his task; but he did not know when to let the reforms take hold and consolidate. Mr Caygill’s approach seems more measured, the level of rhetoric is lower, and the chances of recovery are therefore greater.