26 May 2012

Govt makes virtue of zero Budget

10:20 am on 26 May 2012


It seems strange that a government would be making virtue of what it calls a zero Budget and stranger still that the public might see it as a virtue.

But that reflects the fact the Government has run large deficits since coming to office and that economic uncertainty in Europe, particularly Greece, has the whole world on edge.

Radio New Zealand's political editor Brent Edwards previews the 2012 Budget.

Government ministers here can quickly rebuff criticism of their approach by pointing to the crisis in Europe. That argument, though, only goes so far.

The problem for the Government is that all through these crises, including the economic impact of the Canterbury earthquakes, Prime Minister John Key has been positive and optimistic about the immediate future.

That optimism has been clearly one of the reasons he and his government have remained so popular. But it appears to be wearing thin as people continue to face tough times.

The Labour Party have gone back to comments Mr Key made about each of the Government's previous three budgets and measured them against what actually happened.

In 2009, the Prime Minister said the Budget was starting the changes needed to lift New Zealand's long-term economic performance. In 2010, he said the Budget was about growth, jobs and the future of New Zealand. Last year's Budget was "likely to see very strong growth in real wages for New Zealanders ... very strong job growth and a much stronger economic outlook".

Labour says instead this Government has the worst growth record of any government in the past 50 years; that 1000 people a week left for Australia in the last year; that the number of children in benefit dependent households has increased by 33,500 since National came to power; and that unemployment has risen by 52%.

John Key has been caught out by his positive spin.

John Key has been caught out by his positive spin. Photo: NATIONAL PARTY

Again, Mr Key's response is that Labour fails to recognise that National has governed through the global financial crisis and has had to deal with the Canterbury earthquakes.

The Prime Minister, though, is being caught out by his own positive spin from previous years. He has also been caught out over the debate over the level of public debt.

In Parliament this week, he continued to blame poor spending by the previous Labour-led Government for pushing debt higher.

When New Zealand First leader Winston Peters pointed out net public debt was only $6 billion when National took power but had risen to $50 billion by the end of 2011, Mr Key had a different response.

He says Mr Peters is suggesting then that the Government should not have blunted the worst effects of the global financial crisis and instead slashed welfare, cut spending on health and education and provided no money for the Christchurch rebuild.

Mr Key cannot have it both ways on the debt argument - but nor can the Opposition. When Opposition MPs criticise the Government's borrowing programme are they suggesting it should stop borrowing?

Any dramatic cut in borrowing would have had to require an even more savage cut in public spending.

Instead, Mr English argues this Budget will continue the Government's sensible approach to economic management in tough times. There will be no extra money for new initiatives. These will have to be paid for by spending cuts elsewhere.

Overall spending to rise

But at the same time the Budget will also retain spending the Government says protects the most vulnerable. It is, for example, proposing no new cuts to Working for Families tax credits.

And spending on both health and education will rise, albeit modestly. As well, while this is no extra money for new initiatives, overall spending will still rise as the Government spends more on superannuation, benefits and demand driven costs in health and education.

Mr English says the theme of the Budget is confidence in uncertain times.

He and fellow ministers are likely to argue there is no alternative to putting a tight rein on spending.

But there is still plenty of room for debate about the Government's tax policies and about where money is spent.

And once Mr English has delivered his fourth Budget, he and John Key are likely find it increasingly difficult to continue to blame the former Labour-led Government for all the country's economic and fiscal woes.