Maurice Williamson has a habit of chanting “roads” in rousing speeches to National party faithful and promising all of the petrol taxes to building them. Now Michael Cullen has (sort of) joined him.
A quietly triumphant Cullen declared that over the next five years he will spend $300 million more than the total of fuel taxes — and this coming year even more for a raft of special projects.
It is not quite what it seems. He is raiding Meridian’s $800 million capital gain from its adventure into Australia and will issue up to $1 billion of long-foreshadowed long-term infrastructure bonds.
But he has gone beyond just matching fuel tax with road building. He has committed the government to ensure enough funding to carry through the whole of the programme for the next five years even if costs rise and fuel tax revenue falls. There is to be no repeat of the embarrassing downsizing of the programme by Transit early this year.
Cullen hopes thereby to convince business he is serious about the “economic transformation” plank in the government’s three-part platform (along with “family” and “national identity”).
The government has committed to unbundling the local phone loop, mused about more regulation of Telecom, got under way a review of the dog’s-breakfast energy regulation which threatens security of electricity supply, boosted a range of tertiary, technical skills and foundation skills programmes — and has given a small lift to commercialisation of science.
These are all indirect supports for business and shouldn’t be sneezed at. Also indirect, but nonetheless important to business, is the huge increase in Working for Families spending (to 1.5 per cent of GDP) and the overall stimulatory fiscal stance which will offset the slowing economy at household level and moderate the fall in consumption.
Cullen calls this letting the automatic stabilisers work — in good times contractionary and building up big operating surpluses and in slow times expansionary and delivering cash deficits.
There are also some smallish direct supports for business, notably in export market development assistance and workplace productivity.
But the big one, tax, is absent, the more glaringly since Peter Costello was bold on that score last week. National quickly seized on that: John Key said: “Substantial tax cuts are a major step down the road of driving up our sustainable growth rate.
Cullen answers that legislation passed in March brings big benefits in depreciation, FBT and administration and help with recruiting foreigners. He notes that IRD estimates of forward tax takes are higher than the Treasury’s, which gives him potential room for manoeuvre on tax in 2008. And he points to the discussion paper coming next month or July on business tax “structure”.
There will be, he said yesterday, a range of scenarios. The final package could be mix-and-match.
One possible scenario is a 30 per cent company tax rate in 2008, pushed hard by New Zealand First and United Future — in which case, Cullen said yesterday, there might be a flow-on to personal rates.
Another option is to finance the loss of the carbon tax by dropping the inflation-indexation of personal tax thresholds from 2008, announced last year under pressure from United Future.
Whether he — or whoever is Minister of Finance in 2008 — will have much flexibility then is moot. Cullen said yesterday he has enough flexibility to manage the fiscal strategy through the cycle without having to adjust the parameters.
But the Treasury’s forecasts have the terms of trade falling, employment growing slowly over the next two years and GDP likewise, even taking into account the fiscal injection of Cullen’s four-year $9.6 billion spendup.
That produces for two years running OBERAC operating surpluses below the 3 per cent of GDP he said yesterday he needed to fund his superannuation fund while keeping the debt-to-GDP ratio constant, which he declares to be his long-term strategic objective.
And “economic transformation” is at best slow-acting. Tepid injections into the research science and technology (RST) budget underline that.
True, Cullen set yesterday a target of 0.68 per cent of GDP but put no date on it. He also flagged another $30 million compounding from 2007-08 (totalling $180 million over three years) but that is an ambition, not (yet) a commitment. Transforming the economy will need bigger numbers than that.
Meantime, traditional Labour is very much on show in this Budget: health, student loans, education, Working for Families (which is tax relief of a sort) and a whole section on Maori, a word entirely absent from the 2005 Budget.
That poses a big challenge for National going into the 2008 election. Voters don’t like cuts in spending, as Jim Bolger found after 1991’s “mother of all Budgets”. Has Cullen in this Budget pinned National’s room for manoeuvre? He would hope so. Budgets are politics.