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Cullen's BPS Similar In Scope To Winston's First

The 2000 Budget Policy Statement - the first of new Finance Minister Michael Cullen - appears to be calculated to please, both the markets and the Labour/Alliance's caucus.

On the bottom line the plan for new spending over the next three years of $5.9 billion (GST inclusive, $5.2 billion GST exclusive) is very similar to the $5 billion (GST exclusive) planned to be spent by the previous coalition government under then Treasurer Winston Peters.

Underlying the numbers in the projections is a sense of conservatism. Fiscal surpluses are forecast, as expected, but not large ones. Similarly growth at lower levels than many private sector forecasters are predicting is factored in to the forecasts.

If there is any risk around this Budget Policy Statement it appears calculated to give Dr Cullen more room to move later in the term of the government when revenue receipt results turn out to be better than expected.

According to the forecasts in the BPS we are expecting a surplus of $400 million this fiscal year compared to a roughly even balance expected in the pre-election fiscal update. This rises to a surplus of $1 billion next fiscal year and $2 billion the next year.

Over the same period there is considerable scope for extra spending by the government in the numbers provided.

Operating expenses of the government this fiscal year are forecast at $36.2 billion. Next year there will be an extra $1.5 billion spent (more than spent this fiscal year). The 2001/2002 year sees $38.9 billion spent (another $1.1 billion) and then 20002/2003 - election year - sees another $1.5 billion expansion in government spending to $40.4 billion.

A useful comparison is to make is to the $5 billion originally scheduled to be spent by the National/NZ First coalition government.

By Scoop's calculations we have an extra ($4.5 billion + $2.2 billion +$1.5 billion) $8.2 billion of spending over the three year period. Of this $2.3 billion is increases in functional expenditure - that is increases in benefit payments, transport costs etc.

In addition to this the government has factored in a $400 million increase in capital expenditure each year which the Finance Minister says is a "technical" estimate and likely to be increased.

A fair comparison to the previous fiscal track appears to be $5.9 billion in increased expenditure under this government, compared to $4.25 billion (after the coalition breakup spending by the National government fell) under the previous government. This compares to roughly $2.7 billion that the National government had been planning to spend on policy initiatives over the next three years had it been elected.

The provision for capital expenditure expansion is generous and Dr Cullen is strongly hinting that there will be greater expansion here than disclosed in the BPS.

During the press conference this afternoon the Finance Minister said he expected capital spending to be considerable particularly in the areas of prisons, schools and in defence.

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