Govt considered payment to all adults to boost economy

Photo / Glenn Jeffrey

The Government considered handing out billions of dollars in lump sum payments on July 1 this year to stimulate the economy in the May 28 budget.

Treasury today released thousands of pages of documents that outline the creation of the incoming Government's first budget.

One Treasury paper in February warned that the Government faced a lower tax take and higher debt levels that would send alarm bells off in the credit rating agencies.

It outlined options to suspend payments into the New Zealand Super Fund, lower future budget spending allowances and axing the tax cuts planned for 2010 and 2011 - all of which were confirmed in the budget.

It also scoped a one off payment to New Zealanders to stimulate the economy - but it never got as far as the Cabinet table.

The paper details how $1 billion could be divided up.

One option suggested a $300 payment to all adults, a $1200 payment to beneficiaries and superannuitants, while another option was $200 to beneficiaries and $400 to adults.

But the paper also argued the payments would undermine the attempt to rein in government spending and it was hard to target the package to those who would use it to most effect.

The paper also outlines other options such as:

* A $1000 payment to all adults at a cost of $3.1 billion;

* payments of up to $2000 to $3000 for a cost $1.6 billion;

* a payment of up to $2000 for beneficiaries and Working for Families recipients at a cost of $1.4 billion

* payments to both working adults ($550) and beneficiaries ($300) at a cost of $1.5 billion.

Treasury said that some of the money would be clawed back through the GST take as people spent the money.

One-off payments were part of a number of countries response to the world wide recession.

The Government in New Zealand said it preferred a "rolling maul" approach to the recession and not a "big bang" approach.

There is little mention of the idea in later papers which indicates senior ministers gave up on the proposal early on and never took it to Cabinet.

This was probably because numerous papers early in the process warned that the deterioration in the international economy was continuing faster and harder than officials could keep up with.

Treasury pushed hard for savings from departments and while they were offering more savings than in past budget rounds, bids still vastly exceeded the money available.

Another paper warned that without cutting the annual budget allowance for future spending, it would be difficult to ever return to surpluses.

On the other hand there were also warnings that the future spending profile was "unusual" and future budgets would be difficult to write without departments finding ongoing savings.

Finance Minister Bill English said the papers showed that officials offered up a number of options to get government spending and debt levels under control, but it had been decided to maintain entitlements.

The papers contained few surprises, he said.

- NZPA