Editorial: Budget should not simply boast additional spending

Editorial

The Labour-led Government will deliver its first Budget this afternoon in economic conditions that could hardly be better. After five years of growth, the "rock star" economy is no longer a stand-out, the world economy is recovering strongly at last from the crisis a decade ago.

That should mean continuing growth for New Zealand in the years ahead, aided by a lower exchange rate as other currencies rise in value. Our primary exports, already enjoying good terms of trade, and our tourism should reap the benefits.

Internally, the economy has been expanding at around 2.7 per cent a year on record net immigration and business confidence. The previous Government reaped rising tax receipts that saw its Budget return to surplus two years ago and last year surpluses were forecast to rise to $6.4 billion over the next four years.

Growth in the current year has generated a higher than expected surplus of $3.3b for the nine months to March 31.

The new Government cancelled the tax threshold adjustments that were due to take effect on April 1, using most of the money, but not all, for a more generous family assistance boost than National had planned. Look for an operating surplus of at least $2.5b in the Budget this afternoon.

It might not be there. The Budget's political narrative will be that the previous Government's surplus was built on "years of neglect" of hospitals and schools and a failure to ensure public infrastructure kept pace with rapid population growth. It is also facing pressure for high public sector pay rises, particularly from nurses' and teachers' unions.

But Labour campaigned on a platform of fiscal responsibility at the election last year, promising to keep the Budget in surplus and reduce net Crown debt at only a slightly lower rate than National had planned. It is important that it keeps that promise. Low net government debt is the country's insurance against the next economic downtown, enabling deficits to be run when they are needed.

A healthy surplus in good times such as this is also important for business confidence in the new Government. Labour and National will argue long and hard about whether the surplus National has bequeathed was built on "underfunded" needs and capital neglect and public opinion will be divided along political lines. But if those who invest money in business expansion and job creation do not see fiscal responsibility in the country's economic management, they will be reluctant to risk more of their money.

The Government has inherited public accounts that are healthy enough to enable it to increase spending without sacrificing the surplus. Nevertheless, it needs to be spending wisely.

Budget speeches are festooned with additional sums of money being proudly spent on health, education and other social goods. It can seem the only measure of virtue is the size of the allocation. It is not so. We need to know precisely what services will be purchased, how they will be effective, and how the Government proposes to measure their results.

We do not really know a government's character until we see its first Budget. We will know this one better tonight.