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HARD NEWS: Budget, Business and Bum-Tickle

HARD NEWS 16/6/00 - Budget, Business and Bum-Tickle

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GOOD DAY MEDIAPHILES ... Labour Finance Minister in boring Budget shock! Well, not quite ... Michael Cullen's maiden Budget was plenty interesting - not least in its disarming fiscal prudence.

It comprises a smaller percentage of GDP than National's last Budget, it delivers a $763 million surplus and projects off into surpluses of $1 billion, $2 billion and $2.7 billion in the out years. Had Bill Birch delivered it he'd have been patted on the back for being so sensible.

The annointed apostles of the business community appeared to expect something different from Labour, however. Having talked itself into an unreasonable depression, business wanted its bum tickled. It needed a "king hit", a "wow factor".

Cullen, frankly, couldn't afford one - or hadn't had time to concoct one in his first six months. Labour needed to do two things: to deliver precisely on the promises on which it campaigned - which arguably is the biggest "wow factor" of all - and to avoid frightening the horses of international finance.

That second imperative was thunderously underlined on the morning of the Budget when the current account deficit inherited from National hit a new low. The markets will have looked at that and will have wanted to see not any bum-tickling but a solid Budget surplus.

Even if he'd wanted to, Cullen couldn't have cut income tax this week - because every time we've done that, it has triggered an orgy of import-led consumption. In terms of the current account, the best setting we can have for the next year or two is a modest domestic environment and a raging export sector.

Cullen also backtracked on the pre-election promise of business tax breaks for research and development, in favour of a bigger programme of R&D grants, starting with an extra $43 million in the next year. It is better than anything National ever offered, but the tax write-off would have been better yet.

On the other hand, there is an orthodox economic argument that you don't rush round offering breaks for this or that because you simply distort your revenue base. Every dollar you give up in a tax break you have to claw back somewhere else. Sure, the Australians do a 100% write-off - but look at what they're doing with GST.

I'd also like to have seen a more substantial commitment to both public and private sector e-commerce - although what has been provided is not to be sniffed at, and is, again, far more than National ever ventured. A piece of advice for Anderton's forthcoming NZ Post Kiwi Bank: Internet terminals for government service access. Do it.

Going back to R&D, the reason the tax break would have been attractive to businesspeople is that it would have let them spend their own money, and would not have obliged them to interface with any public servants.

This, perhaps, will be one of the key challenges for a government which declares a more active role for the state in economic and social affairs. National's policy of looking the other way when it came to the civil service led to the grotesqueries of WINZ, IRD and the Tourism Board. Labour-Alliance has to turn that around without imposing a suffocating bureaucracy.

This applies also to Jim Anderton's regional and economic development package, and Industry New Zealand in particular - both of which have been a bit lost on the business community, despite the allocation of more than half a billion dollars over four years, largely through a lack of detail in the Budget announcement. Anderton, who owned and ran his own company, is better set than any of his colleagues to draw business into the process.

The chief risk to the economy now is really that nebulous beast, business confidence, and in particular the hysterical response to the Employment Relations Bill. The Herald did its best to muddy the waters on Budget Day, with a lead story which tried to turn a strike at a steel mill - under the current employment law - into a winter of discontent, but hopefully people will just get over the ERB and get on with their businesses. Soon.

But in the end this wasn't a Budget about business. It was a social policy Budget. It provides extra money for health services - including $257 over four years for the frighteningly under-resourced mental health sector. It also boosts education funding from pre-school through to tertiary, where it aims to freeze fees and ease the burden of student loans.

There is quite literally a green component, with the Green Party being given a little parcel for its own initiatives, even though it isn't actually in government. This has irritated the hell out of the Alliance, but Labour has, quite sensibly, looked at who's going to grow its vote at the next election and decided to cement the friendship.

The Budget also - and I find this particularly cheering - buries National's awful, comprehensive failure of a housing policy. From December, state house rentals will be fixed at 25% of net income, and a major building programme will begin. For those who aren't in public housing, the accomodation benefit remains, so no one loses out on this.

That's not what the Opposition will tell you of course. In his fairly lame response to the Budget speech, the acting Leader of the Opposition Wyatt Creech ran the usual line: that there is some grave injustice if not everybody gets exactly the same help at exactly the same time. The poor ought all to suffer equally, apparently.

Winston Peters went even further on the really key component of the social programme - the so-called 'Closing the Gaps' initiative, which aims to remedy the social and economic dislocation of brown-skinned New Zealanders.

As he has at various times in his career, he turned on his own - declaring Closing the Gaps to be akin to apartheid. This is, of course, absurd: his party, back when it had the mandate of the five Maori electorates, tried to extract much the same thing from National. New Zealand First failed. Labour can't afford to. The money's there, the ideas seem right and the government has already, in snubbing the Maori Council's radio spectrum bid, demonstrated that it won't necessarily pony up to the usual suspects. This will be interesting.

Creech and others took the line that the government's social programme did nothing for "ordinary New Zealanders". I tire of this argument, I really do, because it presumes that "ordinary New Zealanders" don't have brown skins or kids at school or university or mental health problems in the family. We are all ordinary New Zealanders.

Creech was, of course, speaking because his leader was in hospital recovering from an emergency angioplasty. I join everyone else in wishing the Ship a speedy recovery - but perhaps she should think twice the next time she challenges Helen Clark to an endurance contest.

And, finally: the sport. Big up to Slovenia, which is even smaller than us and was founded with the considerable disadvantage of having been part of Yugoslavia. All the luck in Euro 2000, chaps. And good luck to Wayne Smith, the new All Black coach, for using his whole squad in the first couple of matches. Why the hell not? Commiserations in advance to the Scots, who are going to get their Caledonian arses kicked by the New Zealand Maori this weekend.

I will, nonetheless, be there to see the Scots test at Eden Park on July 1, even though Auckland Rugby appears to have forgotten the lesson of its Easter Weekend five buck special - that if you set a price people can afford, they turn up.

And as if $75 for an uncovered seat ain't bad enough, there's the Ticketek Website. I can barely convey how hard and long this site sucks. It is not only is it ugly as sin and terribly difficult to use, it only offers the worst seats available. And this for a match that might struggle to reach half-full.

If you want a decent seat, you'll have to burn some fossil fuel and get to a Ticketek branch. If this is the knowledge economy, we're all screwed - G'bye!


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