Editorial: Sacred cows fair game as Govt clings to surplus

The Government knows that its final bill has risen again, topping the $13 billion mark. Photo / Greg Bowker

Opinion

A$66 million surplus in 2014-15 is, as Bill English noted yesterday, "not large". But, in the interests of avoiding embarrassment, it is one the Finance Minister is clearly very keen to protect.

As much was apparent as he used the release of the half-year economic and fiscal update to indicate that spending on the Government's biggest programmes is now under the gun. "Long-term drivers of costs in areas such as welfare, health, education and law and order" were mentioned as Mr English outlined his plan to retain the surplus in the face of a threatened further deterioration in the global economy.

Another facet of that process - an increase in petrol tax by 3c a litre each July for the next three years - will have the more immediate impact. But, ultimately, this revenue-raising exercise may be less significant than the check on the Government's spending programme.

The universality of the likes of Working for Families, as well as the generosity of interest-free student loans, have previously been deemed out of bounds. The Government has, unfortunately, not been prepared to take tough decisions, whatever their rationality and reasonableness.

The wealthy, therefore, continue to be eligible for Working for Families benefits. Student loans have been subjected only to tinkering, aimed mainly at reclaiming loans. Mr English's gaze should be directed at tailoring welfare to those who genuinely need it, and reining in the benevolence of the loan scheme.

The petrol tax increase is integral to the 2015 surplus, which is down from $197 million in the May Budget forecasts. It will be worth $300 million a year, and has been tied to the delivery of the Government's roads of national significance programme. There is, of course, no word of the tax being removed once this list of projects is completed. Nonetheless, with the Government ruling out other means of garnering revenue, this tax can at least be justified on the basis of user-pays.

It may also have relatively little effect on drivers' wallets.

Each 1c added to the pump price of a litre of petrol adds about $15 to the annual running cost for the average motorist. That is not a huge sum, especially when cast against rising and frequently volatile petrol costs over the past few years. As well, there is every chance that the price of petrol will start to decrease as the world's vast stocks of shale oil are made available.

The amount of tax collected in recent months has been less than expected. That, in turn, reflects weak growth, which is expected to endure. The Treasury has trimmed growth forecasts for the economy for each of the next two years, as well as the longer-term projection, by about 0.5 per cent a year. The major risk to these predictions is on the downside because of the fragile international economy.

Equally, the forecasts rely on solid demand for primary products, continued lower borrowing costs, and a "substantial boost" from the rebuilding of Christchurch.

This boost will occur but exactly when is unclear. What the Government does know is that its final bill has risen again, topping the $13 billion mark, up more than $100 million from the May Budget. There is also a significant risk of the final cost exceeding the new figure.

If there are obvious shadows over the 2014-15 surplus forecast, a response that incorporates revenue raising, as well as the more familiar cutting of costs, is welcome.

Mr English should also be commended for an overdue focus on the Government's biggest programmes.

There are logical ports of call if matters do, indeed, deteriorate further.