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The Six Key Areas For Budget Analysis

ACT today set out the six key areas that the Government’s budget will be analysed on.

Finance Spokesman Rodney Hide said Michael Cullen’s first Budget is a critical one for the Labour/ Alliance Government desperate to prove its credibility to business and to investors.

1. Sound Policy or ‘Lolly Scramble’?

The new Government must set a clear policy path to dispel the fear and uncertainty that senior Ministers have engendered. The Budget must provide a clear policy framework within which social and economic policy will be developed and implemented by the Labour/Alliance over the next three years.

The danger is “lolly-scramble” Budget where taxpayer dollars are sprayed to a variety of worthy causes without any outcomes or performance measures being set out. This is no direction at all. It can only last while the money holds out.

2. Gap-Closers

The Government has signalled “Closing the Gaps” between rich and poor and amongst the races as its top priority. How the Government proposes to effect this policy will tell us much.

To prove effective the “Closing Gap” policies must change the very structure of incentives that traps people in poverty and perpetuates disadvantage. Another round of “feel-good” policies that dish out taxpayer dollars to community groups without setting out clearly how, and by what measure, the expenditure will close the gaps will signal policy failure and an inability to produce sound public policy.

3. Security of Surpluses

The fiscal track and size of the surpluses forecast will be crucially important. Dr Cullen must stay within the expenditure path he laid down at the beginning of the year. It’s excessive – an extra $3 billion over three years above what National was promising – but at least it is expected.

The surpluses will be better than the predicted $5.1 billion over the coming three years. They will need to be. The economy may not prove as robust as Treasury now forecasts and the pressure to spend may prove too much for Dr Cullen to contain in subsequent Budgets.

4. Superannuation Bill

Michael Cullen promised to invest over half of the forecast surplus into a state-run pension fund. This is a bad idea. The fund management will be politicised, it won’t achieve a good return, and it will deform the capital market in New Zealand. The state-run fund will do nothing to solve the pension problem.

The best thing that the Budget could do is ensure that all the surpluses are used to pay off government debt.

5. Cash to Housing New Zealand

The move to income related rentals saves 41,000 state-house tenants a total of $55 million a year. It saves Work and Income $128 million in accommodation supplements. It costs Housing New Zealand $183 million a year.

The policy is a poor one as it assists only one in eight low income tenants, it distorts the housing market, and it will see huge queues for state rentals that won’t be allocated fairly or on the basis of need.

The other problem is that it wipes about $2 billion off the value of Housing New Zealand. It trades as a State Owned Enterprise and the policy dents its revenue by $180 million a year.

The precise mechanism by which the Government compensates Housing New Zealand will test the Government’s commitment to the Fiscal Responsibility Act. The Housing New Zealand subsidy should be up-front and transparent.

6. People’s Bank
Deputy Prime Minister Jim Anderton has hung his hat upon is his “People’s Bank”. His idea is a state-run bank, owned by the People, run for the People, and paid for by the People. Jim Anderton wants his bank up and running by Christmas. The policy is dopey but the Budget progress on setting up the Bank will be a measure of Jim Anderton’s success and power within the Government. The absence of the Bank’s mention in the Budget will be reassuring.
“There will be some surprises in the Budget. “But the best surprise of all would be a Budget with sound policy instead of a ‘lolly scramble’,” said Rodney Hide.


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