Good fiscal news but where's the growth?

By Rob Hosking

Friday 13th December 2002

Warnings about complacency on the economic front came yesterday as the government posted better-than-expected fiscal results.

The government's operating balance for the four months to October 31 was just over $1 billion higher than forecast.

More importantly, the balance figure, which strips out changes in the value of financial investments and foreign exchange related movements, dubbed the "Oberac," was $1.3 billion higher than forecast.

However, business groups are warning this should not cause complacency in the government nor should it lead to a desire to spend the extra money.

"We're certainly not trying to put across the idea we are doing badly," Wellington Regional Chamber of Commerce president Barrie Saunders told The National Business Review.

"In terms of economic growth we've done better than the OECD average for the past 12 years. But we started off so far behind we can't afford to be complacent."

The country's chambers of commerce are urging the government to make a greater commitment to its professed goal of an average of 4% annual growth.

The chambers want each proposal that comes before the cabinet to carry an analysis of whether it helps or hinders that goal of 4%.

The Wellington chamber has taken a policy lead on the issue and Mr Saunders and Wellington chamber chief executive Philip Lewin recently met with Finance Minister Michael Cullen on this and related issues.

Dr Cullen is understood to be sympathetic to the idea but there is no commitment at this stage.

Making that sort of analysis a normal part of the policy process could check some of the more wishful thinking that can go on.

"Even if a policy initiative would have a negative impact, there may be other good reasons for having it.

"The point is to get ministers to think about all the implications of their decisions.

"The fact is that we have Cullen and some of his aides coming out with some quite positive initiatives for the economy but there are others in the cabinet trying to do the reverse not deliberately, it is just that the mindset is not exactly positive for business."

The suggestion to the government is part of a broader push by the chambers of commerce at a national level to put some more policy "meat" on the 4% growth target.

Early next year the chambers are to release a discussion document on the wider implications of that target.

"While the economists and the business community and some ministers are talking about getting the growth rate up, we suspect that the buy-in amongst the wider community is a bit limited. We need to develop a broader constituency for growth.

"We're trying to get people to understand that, for example, if teachers want to be paid the same as their Australian counterparts they need to live in an economy that is doing as consistently well as the Australians."

The strong note of caution about the apparently rosy economic situation at present is also being sounded by Dr Cullen himself.

The government next week releases its December economic and fiscal update, as well as its annual Budget Policy Statement, which sets out the broad policy goals for next year's Budget.

In the face of higher than expected revenues, the government should respond "as any large and complex business would respond: with caution," Dr Cullen told the Institute of Directors in Auckland.

In a speech clearly aimed at his fellow cabinet ministers who are currently preparing their Budget bids, Dr Cullen warned against a spend up.

The cause for the unexpectedly high revenue could be cyclical, or there may be timing issues to do with paying tax.

"Equally, some of the forecasts may overstate emerging surpluses ... [or] it may just be possible that we are starting to see a lift in the trend rate of economic growth. To be frank, at this point in time, we simply do not know."

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