Election pledges put to the test

By Vernon Small

Voters will be able to judge how realistic political parties' spending and tax promises are today when the Treasury opens the Government's books and gives its latest view of the economy.

The pre-election fiscal update is expected to show the economy growing more slowly this year than predicted in the May Budget, but performing more strongly over the next two years.

It will show the Government's Budget barely balancing in the 1999-2000 year but moving slowly into surplus over the next three years.

The Government will struggle to extract any good economic news from the numbers, against a background of a current account blowout, a shrinking economy in the June quarter and rising mortgage rates as banks anticipate an interest rate rise when the Reserve Bank issues its monetary policy statement on November 17.

The chief executive of the Manufacturers Association, Simon Carlaw, warned yesterday that the domestic market was weak in the September quarter and he called for the Reserve Bank to be cautious. He said manufacturers were struggling to compete against a surge in Asian imports.

The chief economist of Deutsche Bank, Ulf Shoefisch, expects the Treasury to forecast growth of 2.4 per cent in the 1999-2000 year, down from 2.9 per cent in its May outlook.

He expects forecast growth of 3.8 per cent in 2000-01 and 3.3 per cent in 2001-02.

The Treasury was set to pick a surplus of $500 million in 2000-01, rising to $1.2 billion in 2001-02.

The update will assume National's planned $400 million in tax cuts go ahead on April 1, 2000, although they do not have the backing of a majority in Parliament.

The Treasurer, Bill English, said the update would set the benchmark against which all party promises would be measured.

He accused Labour of running two sets of spending promises. The "A" list included the seven promises on its pledge card. A "B" list contained promises which had not been costed or factored in.

He said the "B" list would need to be paid for from higher taxes.

But Labour's finance spokesman, Michael Cullen, said Mr English was just scaremongering and Labour had made it plain it would impose a small increase in tax on income above $60,000.

Labour would have $800 million a year more than the figures in the update because it would raise $400 million more in taxes and would not implement National's tax cut.

Economic forecasts for the update were finalised at the end of September and fiscal forecasts were completed on October 6.