A Budget more remarkable for the problems it missed

Press, 29 July 1989, Page 20

A Budget more remarkable for the problems it missed

Pattrick Smellie, in Wellington, reports that the

Budget is not the wild vote-catcher some expected

SECURITY WAS the watchword in this week’s Budget. The switch from a focus on radical change is one which is befitting both the present mood of the country and the change of • personalities in the finance portfolio. Where Mr Roger Douglas liked to try to outrun his opponents with ever-new initiatives, Mr David Caygill’s avowed style is to try to take people with him. The differences between the two might be summed up in the fact that Mr Caygill finished preparing the Budget last Sunday, while finishing touches to Mr Douglas’s Budgets were often still under way on Budget morning. The question must be, however, whether the Budget will be enough to give the Government the kick-start it needs to regain its popularity before next year’s election. On the face of it, the answer is probably no. The most impressive aspects of the Budget are in the sections where Mr Caygill has been left to his own devices. If accepted positively, Mr Caygill has produced a safe, comfortable Budget which should push interest rates on home mortgages down around half a per cent in the next couple of months. Once the inflation effects of this month’s GST increase are better known, there is probably scope for further falls later in the year. By producing his smallest financial deficit yet, Mr Caygill has maintained the Government’s credibility in economic management. The logic of balancing the nation’s books, which was at the core of Rogernomics and which every household got the hang of, remains intact. For the first time in many years, the Government does not envisage increasing the public debt. Its projected Budget surplus of $3.1 billion is the biggest so far, and the move to desensitise the asset sales process is probably a sensible one. For this year at least, the Government has managed to be reasonably restrained in its spending, although the deficit has been narrowed largely through increasing GST and a one-off timing change to PAYE tax payments. These are legacies of Mr Douglas, which Mr Caygill has adhered to, without pushing the boat out any further in directions Mr Douglas. would have advocated. Spending restraint, in particular, is one policy which even the wettest Cabinet Ministers cannot reject or ignore now. Paradoxically, the Cabinet is under greater discipline now to be financially responsible than when Mr Douglas was in their midst. What remains to be seen is whether Mr Caygill will continue to get his way as the memory of Mr Douglas fades. It appears that a good many

spending decisions have been deferred into future years, despite statements of principle in the Budget. It is amazingly short on major decisions which will have an immediate impact. Where the Budget is most disappointing is in its social policy agenda. This was the Goveriiment’s opportunity to turn the political mood on its head, grab back the initiative, and prove that Labour parties are still the best at social reform. Instead, we appear to have been dished up the results of a Cabinet battle over superannuation which the Minister of Social Welfare, Dr Cullen, lost,

and a mish-mash of minor new policies. Indeed, all the bluster about national superannuation being unsustainable starts to look a bit silly if the alternative is simply much the same policy by another name. We must surely now get a bipartisan approach to the superannuation issue by proxy, since National’s approach is so little different. Graft a few tax incentives on top, and there it is. Where is the “most radical change since 1938” that the Prime Minister, Mr Lange, talked of only last Monday? Those who had thought they could stop using the five-volume

report of the Royal Commission on Social Policy as a door-stop had better think again. The move to a system of universal benefit system is probably sensible, but it is not radical. Perhaps most disappointing is the apparent failure to address the problems thrown up by Mr Douglas in his ill-fated flat-tax package. Those centre on the very real problems faced by people trapped in the socialwelfare system by the high tax rates they face if they decide to enter the workforce. Mr Douglas’s answers weren’t the only ones, but it is almost as if Mr Lange and his close sup-

porter, Dr Cullen, have declared sucli issues off-limits. They went unmentioned anywhere in the Budget, yet they remain a major barrier to job growth. The moves in areas such as early childhood care, cervical screening, and justification of a universal superannuation as assisting those with broken income patterns are all clearly aimed at shoring up flagging support among women. But they are again not radical, rather just sensible. So while traditional Labour people may be pleased with the Budget, that may be more for what it does not do than what it does. None of this is to say that the social policy reforms are necessarily bad, in economics or in politics. But they were over-sold. The germ of an election-winning strategy is not apparent among them. And on the superannuation front, the Government has dodged a golden opportunity to adopt some form of means-test-ing more sophisticated than the superannuation surtax. As AMP’s superannuation manager, Mr Don Dickson, said yesterday: “We have to ask how long we keep on paying universal benefits to relatively wealthy people.” What the unexciting social policy programme means is that the Government is still relying on economic recovery to dig out of its current electoral hole. The prognosis is only so good. While the Treasury forecasts unemployment to start falling next year, it appears it may not do so significantly before the election. Even the most optimistic forecaster sees a gradual recovery, at best. And the Treasury’s three-year forecasts place our growth rates still below par against other developed countries. Significantly, though, the forecasts see New Zealand growing at a time when other economies are. back. The hope is that our low inflation rates and increased productivity brought about by five hard years of restructuring will leave us wellplaced to exploit weaknesses showing up in other economies. But it remains to be seen how the Government will achieve its goal of unemployment below 100,000 by the end of 1992, when the forecasts expect it only to have come to 139,000 by midway through that year. The Government’s ambitious targets — which also include interest rates of 7 to 10 per cent — point to a need for further economic action. But where that is to come from is also unclear. The rhetoric of the Budget was to move from the era of change to the era of consolidation and security. The reality is that more, change is required to secure both economic recovery and a better social welfare system.