Cullen concentrates on getting debt ratio down
Unexciting as it was, Finance Minister Michael Cullen said his third Budget completed a $6.125 billion (originally $5.9 billion) programme set out in 2000.
Dr Cullen had a bigger surplus available to play with this year ($2.6 billion), but chose to stay within the guideline (which he said he had to do under the Fiscal Responsibility Act) rather than don the election-year Santa uniform and hand out lollies.
He continued to fire shots at the cut-tax brigade, bringing the only demonstration of serious discord during his parliamentary budget speech when he got off the dreary topic of budget figures and launched into a party-political attack on the notion that cutting taxes benefits the nation, and against the view that New Zealand is a high-tax country.
Whatever the tax level, most taxpayers would prefer it was lower. That’s plainly not going to happen while Dr Cullen has the reins.
New Zealand’s growth this year and for the next 2 years will be about 3%, low compared to the 4% Dr Cullen said recently we need to achieve but a level he seemed happy with today.
Dr Cullen said that in achieving a consensus on how to lift New Zealand’s performance, “We ened to recognise 3 facts which are all too often ignored. The first is that New Zealand’s long-term growth performance has been by no means calamitousâ€¦
“The secondâ€¦ is that this long-term underperformance is due to a complex interrelationship of factors which do not lend themselves to simplistic bumper-sticker solutions.
“The third fact is that there is little evidence to support what are sometimes portrayed as the key reasons for that underperformance and therefore the guides to its improvement. The most frequently asserted of these is the contention that New Zealand is highly taxed by developed country standards.”
Dr Cullen said the comparisons were usually wrongly based. He picked out a 6-country comparison in the Economist which compared the total cost to businesses of corporate taxes, social security levies, local body rates & excise duties. The total burden ranged from 9.5% of gross domestic product in the US to 19% in France. Dr Cullen said New Zealand would rate about 7%.
He didn’t say whether the many former taxes/rates such as the student loans scheme through to user-pays rubbish collection and insured healthcare were included in or excluded from his tax equation, so I’m as wary of this comparison as I am of others.
Within New Zealand, Dr Cullen said significant cuts to personal taxes in 1986, 1988, 1996 & 1998, and a massive cut to the corporate tax rate in 1988, all failed to lift the sustainable growth rate. They resulted in significant revenue losses, with consequential pressure on government spending or its operating balance.
“Therefore, the onus of proof rests upon the proponents of such cuts to demonstrate that they will lead to anything other than the unsustainable & inflationary lift in the growth rate that would come from any fiscal looseningâ€¦ This is not to say that there are not ways in which addressing problems in the tax system can contribute to improving economic efficiency & performance.”
So, the budget did not focus on reducing the government spend and giving the change back to individuals, or on ways to lift growth without centralised control.
Dr Cullen highlighted the stronger balances — net debt at 17% of gdp in June 2003, 15.5% in June 2006, the super fund up from $1.9 billion & 1.5% of gdp in June 2003 to $8.9 billion at 6.3% of gdp in June 2006, a well controlled picture.
But he has spread lollies about — huge capital programmes for a long lineup of hospitals, and an acknowledgment that health spending is rising (from about 15% of gdp to 21% in a handful of years) because the population is aging, without a serious idea on how to stop the rise.
He has paid considerable attention to the knowledge economy and the drive to support new-era economic development. On the other hand, among the many ministerial statements handed out with the budget was the dunce’s prize from Education Minister Trevor Mallard, who, in the midst of a highly unsettling secondary teachers’ strike over inadequate recompense in time as much as money for the introduction of the new national certificate of educational achievement, issued a statement which ended: “At the secondary level, there is $6.8 million over 4 years to support teacher professional development for NCEA levels 2 & 3 and to fund research into the effects of the NCEA on teaching & learning.
“These initiatives show our commitment to a quality education system.”
Another of Mr Mallard’s releases highlighted school funding increases: “Per pupil funding rates to schools will rise next year by 2.2%.” Dr Cullen expects the inflation rate next year to be 2.5%.
Said Mr Mallard: “The budget shows our ongoing commitment to resourcing schools for both their operational & staffing needs. This is an important aspect of maintaining & enhancing the quality & excellence in our schools.”
That kind of statement explains why the private educational sector, led by John Graham’s Senior College group, is growing so fast: Mr Mallard’s statement is unbelievable.
Carried through into the Knowledge Economy, Mr Mallard’s Orwellian behaviour would be debilitating on a wide scale. The Government is looking at public/private sector partnerships, so long as the Government retains control. State staff might be fine at their jobs, but the control-freak behaviour on both the purse strings (Cullen on an aversion to lowering tax) and performance (ministers like Mallard creating the need for a whole damage-control industry) won’t advance the economy, especially the knowledge part of it.