Cullen promises tight hold on public's purse

By BRIAN FALLOW

WELLINGTON - Finance Minister Michael Cullen is promising to be a "cautious and prudent" custodian of the public purse.

In comments more likely to appeal to the financial markets than to colleagues clutching wish lists, Dr Cullen said: "I want to be able to bank some of the surpluses over the two years to smooth out the [business] cycle and smooth out the demographic effects of the ageing of the baby-boomers" - a reference to Labour's policy of building up reserves to partially fund future national superannuation.

Speaking to a conference of community trusts in New Plymouth, he said he would be taking a cautious approach to future trends in Government revenue and expenditure.

Over time, revenue flows would expand as the economy grew.

"But it is important we don't confuse cyclical upturns with trend increases."

He accused the previous Government of exaggerating the cycle by spending during the upturn and cutting back in the downturn. Fiscal policy should moderate, not exaggerate, cyclical movements, Dr Cullen said.

"I have been consistent in telling my colleagues we do not have to do everything in one year. The speech from the throne outlined the Government's programme over our first term, not the first year."

The strength and sustainability of the economic recovery should not be overestimated. The external accounts remained weak with "still sluggish" export growth and an unrelenting surge in imports.

The long-term structural weaknesses in the economy had no quick fix, said Dr Cullen.

"We need a more constructive attitude to investment. We have tended to see investment as rotating around the sale of existing assets to new owners. The theory is they bring the skills and technologies to add value to what went before.

"The big gains, though, are when the new thinkers invest on the frontiers of technology to diversify and expand the production and employment base."

This did not just mean the frontiers of computer technology, "Too often when we talk about the knowledge economy we forget that the most intensive knowledge is actually embodied in our agricultural, forestry and fishing industries."

New Zealand needed a coordinated strategy to lift skill levels in the work force, which were low compared to the rest of the developed world. It also had to stem the flow of "our best and brightest" seeking better pay and career opportunities overseas.