Saturday, May 24, 2008
No more bets please
In one fell swoop, Michael Cullen has dashed his fiscal prude reputation. He's gone all Dr Everett Scott from Rocky Horror's Floor Show. Beneath that straight exterior lay a fiscal cross-dresser all along. No borrowing to fund tax cuts? Nah, strip that off. No impact on inflation? Off goes that shawl.
Thursday I thought differently. I watched the budget on the telly in Bowen House with several minor household gods (Jeez, even shared a lift with Jeanette Fitzsimons. Meant to say something useful and courteous to her. Only thing I could think of was "I'm amazed I got you to use the F bomb on the telly." But better to be thought a fool, than to open one's mouth and remove all doubt, eh. I maintained my right to silence).
At the time, it seemed the best budget that Cullen could have given. Tax cuts, check. Compliance thresholds eased, check. Extra spending to help prevent the left wing from calling it a cheese-eating surrender monkey budget, check. But the more I sleep on it, the more I read, the more I understand Bernard Hickey's anger towards this budget.
Bottom circle is Cullen's major concession, a cash deficit of 3.5 percent of GDP. As Hickey points out, Cullen has blown his major argument against borrowing for tax cuts. Top circle is the OBEGAL balance. Notice that god-awful drop in surplus. 2011 is tighter than anything the Nats had to deal with under the Asian Tiger Crisis of the late '90s. As DPF quite rightly calls it, Cullen has spent everything. Which, heading toward an uncertain economic period, seems too damned thin. There is no margin of error.
Fact is, Cullen admits that some cuts in future government spending will be required, but he won't be the poor bastard to determine where it will come from. The Labour government in general, and Michael Cullen in particular, is never good at cutting government spending. What is the growth in Health spending these days? What, upwards of 40 times GDP growth? Labour specialises in finding devious new taxes, not cutting them.
Which brings us tangentially to the tax cut thing. $10.6 billion over three years. Sounds nice, until you realise that these are funded from cuts in government SAVINGS, not spending. One of the points of tax cuts is too swap government expenditure with household spending and (hopefully) saving. That way the CPI comes out relatively unperturbed. However, as The Standard helpfully lists, government spending continues apace.
Rodney Hide riffed on how the budget included $100 for chocolate bikkies at the Tauranga RSA, such was the micromanaged scale of the spending. Roger Douglas lamented how his budgets had real reasons behind them, not just the self-justifying brand rationale of National Identity, Economic Transformation and Young & Old. Yes, it was the Budget of All Mothers, but only if Macsyna King was your Mum. Instead of P and pokies, Cullen blew it on tax cuts and trains.
The growth forecast for 2010-11 seems unduly optimistic at 3.5 percent, what with staring down the barrel of stagflation and recession and all. But Labour want to make life as difficult as possible for the Nats. It has worked, albeit temporarily. What choice did the Nats have but to vote with Labour for the tax cuts under urgency? None whatsoever. Snookered indeed.