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BUDGET 2012 COMMENT: Doddling along the best we can hope for

BUDGET 2012 COMMENT: Doddling along the best we can hope for

By Pattrick Smellie

May 25 (BusinessDesk) - Criticising Budgets for lacking vision or imagination is like shooting fish in a barrel, but even so, this year's Budget again feels like a missed opportunity.

Perhaps it's the intrusion of real world needs that means the government couldn't make better political use of the $558.8 million it expects to gather in its first partial asset sale.

After all, the title for this year's Budget is "Investing in our Future", which looked briefly like a bit of PR conjuring to contrast the pain of asset sales against the gain of new public assets.

But what did we get instead? A $250 million capital injection into KiwiRail. Granted, there's a political constituency for keeping alive our threadbare version of that 19th century technology. But let's face it, the recapitalisation of KiwiRail is a distressed investment. It even says so in the Fiscal Risks section of the Budget, which warns not only that KiwiRail will probably want another $90 million next year for reinvestment in its network, but that proposed writedowns to the KiwiRail balance sheet also represent a "new, unquantified" fiscal risk.

If there was ever a case for governments not owning businesses, KiwiRail is it.

Beyond that, the Budget is as you'd expect. Assiduous tweaking of revenue and spending - particularly more than half a billion dollars of savings from deferring automatic KiwiSaver enrolments - has helped support forecasts for a wafer-thin Budget surplus of $197 million in June 2015.

And that's achieved with a lot of priority shuffling allowing significant new investment in health, education, justice and science priorities.

While it's a zero Budget, it's by no stretch an "austerity" Budget, although kids who pay PAYE might not agree, having had their previous right to get overpaid tax refunded in exchange for making honest boys and girls of those who do odd-jobs for cash in the hand, which have always been theoretically taxable.

A cynic might put that move together with the latest whack at tobacco excises by speculating that would-be adolescent smokers will favour tax-free lawnmowing over taxed café work to fund the habit.

Part of the problem with Budgets is that their focus on the government's fiscal position crowds out the opportunity to identify major new strategic approaches which might actually make the New Zealand economy grow faster.

That's arguably where the biggest hole in the Budget lies.

Using current policy settings, the Treasury projects out key economic indicators through to 2026. The further out those projections go, the less likely they are to be accurate.

However, the fact that economic growth is projected to be just 2 percent a year by 2026 is effectively an admission of defeat on the likelihood of any step-change in the country's performance.

Until that long-term projected growth path improves, and is accompanied by a sustainable set of external accounts, then next year's Budget and those which follow it will continue to look like this one and the last one. That is, a document that tweaks the forward outlook, but promises only more of the same doddling along - assuming of course that the rest of the world plays ball.

The Budget assumes China and Australia will keep coming to the rescue of our export sector, at the same time as the turmoil in Europe remains the darkest and most unpredictable cloud on the horizon.

If that doesn't happen, even doddling may be a bit much to expect on current policy settings. So, yes, a sensible, balanced Budget, but not yet one to keep our children here.


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