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Sludge Report #13 - The Budget Is Wrong

NOTE: Authors of this report will be anonymous and wide ranging. Indeed you are invited to contribute: The format is as a reporters notebook (But can be varied - as now with this investigation). It will be published as and when material is available. C.D. Sludge can be contacted at The Sludge Report is available as a free email service..See SCOOP.CO.NZ

Sludge Report #13

Disappointment In The Lockup

CD and assorted Sludge have been locked up in the Beehive since 11.30am with a remarkably disappointing budget. True it contains a new lingo. But as the government has already announced most of it - what is left comes as a bit of an anti-climax.

Some parts - like the $20 million for Maori stop smoking programmes (what about the rest of us?) - and the preliminary detail to the super scheme - look like political minefields due to explode shortly.

Other new initiatives look compassionate but like they are not enough - more money for youth, child welfare etc. The majority of the actual money has gone on fulfilling promises on the pledge card - $74 million a year to elective surgery etc.

However as most of the expensive things have already been announced there is not a lot left in the fiscal cupboard - consequently the budget is thin. There are no big hits. And nor is there any prospect of any big hits for the next two years.

It seems student occupations will continue. Freezing fees at current levels is not going to be a "big hit" among students. It is more an "oh really".

The budget - Dr Cullen tells us - contains a fiscal line that is very tight and responsible. He remarks that if it was a British Labour Party budget he would be called the "Iron Chancellor". Sludge thinks they would be less generous.

But back to why it is disappointing.

In theory the budget is supposed to explain the economic position of the nation and the government.

In theory based on these forecasts, the government has arrived at rational decisions on how much it should be spending. And when.

Finally, post the era of fiscal responsibility, the budget is expected to have a stab at estimating what the economy will look like in a year or two, after the government has done whatever it says it plans to do this year.

Out of all this, we, the public, are expected to get a sense of comfort. That there is a plan here and we now know what is going on.

But because everything is based on the forecasts and assumptions everything rests on these. How much growth and when?

From this comes the tax take estimations, the unemployment rate (and cost of welfare), the current account surplus and the operational surplus - the bottom line.

The bottom line in Budget 2000 is that the bottom line is already way out of date.

The forecasts start with the Kiwi Dollar buying 54 US Cents. In fact it is buying 48 US Cents.

According to this budget the NZ Dollar is about to turn and start rising very fast to a Twi or 60 over the next 18 months? With Dr Cullen in charge! Why would it do this?

Because of the rising dollar export growth is expected to slow towards the end of next year, by which time the dollar is expected to be buying roughly 58 on the TWI. It is 51 on TWI today!

A treasury boffin spoken to by Sludge could not explain what is really happening any better than the Treasurer.

Both said there were two possibilities the actual growth track could be much higher with extra bouyancy given to exporters by the lower dollar, or alternatively higher interest rates from the Reserve Bank might lead to a sharper decline in domestic growth.

Essentially the situation could be much better than it looks in the budget. Or it could be much worse than it looks in the budget. Take your pick.

Sludge prefers the former scenario, as the latter (the BERL pessimistic forecast) is according to Treasury Boffin's based on the assumption that we will get very high interest rates because we have a low dollar.

This, thinks Sludge, could be described as the Lemming forecast.

For some reason New Zealand is expected to increase interest rates so much - in order to convince foreigners to buy our dollars - that we will choke off our own economy.

In the final analysis this budget is likely to please almost no-one. The forecasts are unnecessarily gloomy and wrong. There is not a lot of money being spoent and - as the next item shows - there is almost nothing left to look forward to.

Treasurer Michael Cullen's Reconciliation

At the beginning of the Budget press conference Dr Cullen outlined what he said was "the correct" method to reconcile the accounts. He did this to explain how it was so much money would be spent this year and how little is left for next year's budget and the following year's budget. Basically, not a lot.

The following therefore is the official version of this (descriptions in brackets have been added by Sludge.)

All figures are millions of dollars.

YEAR::::::::::::::::::::99-00::::: 00-01:::::01-02::::: 02-03

Pledges::::::::::::::::::106::::::::474::::::::572::::::::::624 (Already Announced)

Non Discretionary :::32::::::::::160::::::::150::::: 151:::(Skeletons In Cupboard)
(East Timor

New Initiatives::::: 282::::::::::416::::::::::338::::::::::354 (Budget 2000)

Contingency::::::::::::::::::::::::: 180::::::::::180::::: 180 (Stuff we don't expect)


:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 550::::::::550 (Budget 2000)

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 575 (Budget 2001)

© Sludge 2000

© Scoop Media

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