Opinion: Budget indicates Labour has forgotten economic growth goal

Monday 31 May 2004

Finance Minister Michael Cullen's fifth budget was most instructive from an economic viewpoint in what it didn't say.

By The Landlord

There was no mention of the goal of returning New Zealand's living standard to the top half of the OECD club of wealthy nations.

Two year's ago Dr Cullen was talking about a realistic possibility of getting the sustainable growth rate above 4%.

Instead, growth has slid from 4.4% last year to 3.3% this year and Treasury is forecasting 2.8% in 2005 and 2.5% the year after. It is then picked to be 3.4% in 2007 but forecasts that far out aren't worth the paper they are written on.

No question this was a political or social rather than economic budget. The $2.4 billion of new spending for 2005 rising to $3.8 billion by 2008 is about delivering a social dividend that Labour is banking on to give it a chance to retain the Treasury benches for a third term.

Sure Dr Cullen can point to New Zealand's growth rate being 3.5% over the past three years against the OECD average of 2.2%. But that has had far more to do with luck -- currency rates, commodity prices and poor relative performance by Japan, Germany and France -- than any policies enacted by the Government. And it is insufficient advantage to lift New Zealand's OECD placing significantly.

In terms of achieving the forgotten goal of climbing the OECD ladder, the budget was stultifyingly lacking in imagination.

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