Zero Budget political and extraordinary

VERNON SMALL
Last updated 08:54 05/04/2012

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Vernon Small

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OPINION: Like it or loathe it, delivering a second "zero Budget" will be an extraordinary achievement if Finance Minister Bill English pulls it off.

It was not so long ago that a new spending allowance of about $1.5 billion was considered tight given the insatiable appetite of the health budget alone, which could swallow $750 million extra a year without any trouble at all.

But as the years of austerity have dragged on, it seems the big-spending ministers and the public servants who report to them have come to accept the message Mr English has been hammering since the global financial crisis hit; that restraint is a permanent state of fiscal affairs.

Hunkering down and waiting for the wheel to turn back in favour of extra spending was not an option.

Even so, consecutive Budgets with no new spending - and more to the point, no major revolt by voters (yet) - is a considerable coup.

Less clear is where the prime minister's Sunday bolt from the blue came from that suddenly wiped away the last $800m earmarked for new spending this year.

He insists it was necessary to ensure the promised return to surplus by 2014-15 was achieved; and it was high time he faced that fact. He and his ministers have been in a minority of 28 in believing the books were on track to surplus, especially with a forecast as knife-edged as $370m.

Yet as recently as last month, Mr Key was still arguing that the surplus was in train, and that the $800m new spend was still part of the plan.

So what has changed in the past few weeks?

About now Treasury will be undertaking its first rough cut of the economic and fiscal numbers before they are finalised later this month or early next ahead of the May 24 Budget.

The assumption is that the economic mandarins are uncovering some nasty surprises buried in the fiscal tables, driven by a softer outlook for the economy.

But there was no hint of that in the Crown accounts, released yesterday, which on some measures actually showed a mildly improving picture from a month before. Sure tax revenue was still soft, tracking $825m lower than forecast. But that was actually better than the $946m shortfall chalked up last month.

Labour's developing theory is that the Government is managing down the public's expectations ahead of the Budget, by implying doom and cuts, but hoping to ride a rebound when it over- delivers on Budget day.

Maybe. But that does not remove the reality of a zero Budget, and all that goes with it.

It is hard to see how it will be anything other than a hard pill to swallow for the public sector and the taxpayer services it provides.

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State chief executives are already gun-shy from the behaviour of Foreign Affairs Minister Murray McCully, in shifting blame for MFAT's muffed restructuring onto chief executive John Allen.

And there was a mini-revolution, ahead of Mr Key's flagship speech on public services last month, with some chief executives peeved that the tough times ahead - that they were being asked to front - were being glossed over by Mr Key.

What is yet to become clear is whether the cut to the $800m provision is a one-off, or if there is more prolonged pain ahead.

Mr Key has not closed off the option of reducing the new spending allowances of $1.2b set for subsequent years in last year's Budget, saying it is always an option.

It is clearly under review, though.

And it would be a fair bet that if more cuts are needed to reach surplus by 2014-15, then they will be made.

It has become an article of faith for the Government that, major collateral damage aside, the surplus target will be met.

Just as Phil Goff was kneecapped by Mr Key's "show me the money" moment in the Press leaders' debate during the election campaign, Mr Key was leg-roped by his matching promise to show us the colour of his surplus.

In truth, it will matter less than nothing to the economy if the 2014-15 outcome is a surplus of $400m or a deficit of $400m. But it has become a litmus test of the Government's economic credibility, at least in its own eyes.

Make no mistake, the zero Budget is far more a political promise than a necessary economic goal.

But it will be an extraordinary achievement all the same.

- The Dominion Post

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