What to make of today's Budget? The first is that the government did what was expected, cancelling its unaffordable tax cuts to the rich and suspending contributions to the Cullen fund in order to minimise its debt pathway, while announcing a few small spending packages (including John Key's laughable cycleway) to make it look like they were doing something. The pleasant surprise was the Greens' insulation fund - the increase is much higher than expected, and is something that will make a real difference. But apart from that, most of the spending announcements were in fact reannouncements of existing packages. But the otherwise thin speech [PDF] had to be padded with something.
The decision to suspend the Cullen fund is a mistake. There is nothing wrong with borrowing to fund a productive asset - and the Cullen fund is highly productive, making a positive return at the bottom of the recession. Giving it more money to buy stuff now while prices are low will lead to even higher returns in the future. But the government's desire for short-term cashflow trumps that, apparently. Instead, the fund will be given money only to "support local capital markets during the downturn" - in other words, to artificially inflate share prices to preserve the asset values of rich investors. Because we can't have them suffering, can we?
But the real sting is in the tail. Bill English has reduced the future new spending allowance - already reduced to a parlous $1.75 billion by Michael Cullen last year - to a pitiful $1.1 billion. Given that we need to allocate an extra $750 million to health and $500 million to education every year just to keep pace with demand growth, English is committing to making real and serious spending cuts next year if he wants to stay within that cap. And that's without even considering the increase in social welfare spending due to the doubling of unemployment by then. Next year will be a black budget. This one simply has the grey of the impending gloom.
