Editorial: Budget short on the tough decisions

Opinion

The budget Bill English delivered yesterday was a difficult one not for the reason he gives, the global recession, but because the outlook in recent weeks has brightened a little.

The Budget was based on economic indicators worse than the worst envisaged by the Treasury at the end of last year. The first few months of this year were indeed worse but the Treasury observes some positive signs this month.

The flickers of improvement in sharemarkets and business confidence may not be enough to warrant a more daring Budget than that delivered, but they could show it to have been too soft. Faced with a highly uncertain outlook, the Government has assumed the worst and decided this is not the time to tackle the weaknesses in its accounts.

Mr English said the Budget's aims were to "cushion the immediate impact [of recession] on New Zealanders and enhance future growth". But he has gone mainly for the cushions. Growth-enhancing measures are modest by comparison with the deficits he projects for the next nine years and the debt that he will allow to rise to levels last seen in the mid-1990s.

It is a depressing prospect; government debt in the mid-1990s was coming down in response to hard decisions made by brave governments that tackled excessive spending, even in a recession. But Mr English and Prime Minister John Key were keen to stress yesterday that those times have gone. Proudly, they pointed out that this Budget maintains superannuation, benefits, student support and family payments.

With no economies in those big outlays, the Government has been able to produce only $500 million in true savings, from its public service review. This figure is half the value of the revenue lost in its tax cut last month, and a third of the additional operating allowance this year.

Other claimed savings are in costs not yet incurred: postponed tax cuts, a reduction in previously programmed new spending, a suspension of superannuation fund contributions until 2020-21. The suspension is far too long, but that is a commentary on the weakness of the Government's plans to deal with the deficits. For the Finance Minister is right that "it makes little sense to burden future generations with debt incurred financing investments that were intended to reduce their need to borrow".

All told the Budget is adding $3 billion to public spending, about half of it in previously announced capital projects that might enhance the economy: broadband, railways, highways. If they produce full value, their portion of the additional public debt will be repaid. But the same cannot be said for the net $1 billion increase in operating expenses, or the $1 billion of tax cuts unless it has been invested well.

Mr English's answer to the rising debt is to reduce the new spending allowance for next year's Budget but that remains to be seen. It would be encouraging to have seen some tougher decisions in this one. Recalling recent history, he said, "It required a monumental effort to reduce debt to today's level. It required many measures government might have wished to avoid, including often harsh spending restraint."

Indeed it did, and it needs such measures again. The recession has shown Labour's spending levels to be unsustainable, and the more since Labour and National have indulged in a round of tax cuts. Hard decisions on welfare entitlements for the well-off, interest-free tertiary loans, free childcare and the like - decisions Mr Key and Mr English were proud to avoid yesterday - will probably have to be made. Maybe next year.

Nine years of deficits is simply too long. The world economy will surely have recovered in half that time. The Government needs to be looking beyond its cushions. The country needs to be awake and well geared for the first signs of recovery.