The O'Brien Column: How does yesterday's Budget stack up against Cullen's first?

By Peter V O'Brien

Friday 24th May 2002

The Budget was never likely to make much impression on investors.

Rising interest rates and appreciation of the New Zealand dollar were of more concern.

The Budget is Finance Minister Michael Cullen's third effort but this one had the added cachet of being an election-year version.

In that context, it was interesting to look back to Dr Cullen's first Budget speech on June 15, 2000.

He was, like all of the ilk known as finance ministers, high on rhetoric and vague on specifics when it came to an economic blueprint.

Dr Cullen said the Budget "moves us," as a society, closer to the destination the government had set for itself through the six goals laid out in the March 2000 Budget Policy Statement.

They were to:

develop an innovative economy that creates jobs and provides opportunities for all New Zealanders;
close the gaps that divide our society;
restore trust in government and to promote a strong public service;
treasure and nurture our environment; and
celebrate our identity as a people who defend freedom and fairness, enjoy arts, music, movement and sport, value our cultural heritage and are committed to the Treaty of Waitangi.

"These are the values that drive this government. They continue to create the context for our decision-making."

Readers can decide how well, if at all, Labour has achieved those goals and whether they had any relevance to the decisionmaking process since the last election.

Dr Cullen's peroration in his 2000 Budget speech was: "It will take many years to restore New Zealand's public, social and economic infrastructure.

In this Budget we make the new beginning that was expected by the people of New Zealand in the last election.

"It reflects an exciting project and one all New Zealanders can feel proud of."

Back in 1999, Dr Cullen's predecessor, Bill Birch, was about to retire from Parliament, although that had nothing to do with the then cabinet's approval of his document.

His Budget speech was still an attempt to do something about an election National was unlikely to win, irrespective of the party faith.

It did nothing to help an already weary government that had run the course of its ideas and consequently the course of electorate acceptance.

Financial indicators in May 2000 and in the same month two years later were similar, although the position in December 1999 was markedly dissimilar.

The New Zealand dollar was worth 45.15USc on May 19, 2000, down from the 52.23USc ruling on December 30, 1999.

It was 45.85USc at the end of last week but money-market people reckoned it could hit 50USc by December.

Bank bills for three months' periods (the arbiter of home mortgage rates) were yielding 5.91% last week, compared with 6.93% two years ago and 5.71% at the end of 2000.

Dr Cullen and all the Queen's ministers could do nothing about any of those movements.

In relation to recent currency movements it was amusing to read an NZPA report that "of the world's main trading currencies, the New Zealand dollar has been the strongest this year, with a gain of almost 9%."

Since when has the New Zealand dollar been "of the world's main trading currencies?"

Our currency is traded constantly on international markets, often beyond the total value of the country's production of goods and services and/or the sum of imports and exports.

Dr Cullen's Budget has no effect on speculative plays on the New Zealand dollar, or on the market forces that move interest rates. The latter are inextricably linked to the former.

Dr Cullen will certainly hold the same office after the election, assuming he wants it, receives his party's accolade and Labour is re-elected.

The last seems certain, unless Labour self-destructs in the next few months, there is a major unresolved crisis or miracles are real.

Irrespective of those matters, the Budget will soon be forgotten in the markets.

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