"The Budget did the job it was supposed to do"

Fiscal Outlook

Business Confidence

Lower Premiums with ACC

The Budget consolidated the Coalition's work since the election and complemented that with some new initiatives.

The theme at the heart of the Budget was participation - of every New Zealander in all the many opportunities and challenges that come from a robust economy and a creative outward looking society.

The $5.9 billion dollar spending cap is still in place. We said we will be fiscally prudent and we will be.

Provision for next year's budget is $550 million and $575 million in the following year.

So, while there will be some capacity for new spending initiatives in the next few years, we will have to heavily prioritise them.

I do not see this as a problem. I was impressed by the disciplined approach my cabinet colleagues - Labour and Alliance - took to the budget round. And after nine years in Opposition the spending pressures were always going to be strongest in our first year in office.

I have no doubt that my colleagues understand that delivering a reasonably consistent and secure programme within which strong economic growth can occur is just as important as anything else in terms of the long term effects we want to make on social policy.

But this, our first budget, had a bigger job to do.

We are determined to keep faith with the electorate by honouring our election promises.

We are going to help industry and regional development. We will put more money into trade development and investment attraction.

The Budget also marked a shift in social priorities. It provided the money to increase the pension by $20 a week for a married couple. It stopped the nonsense of students paying interest on their student loans while they are still studying. It reintroduced income related State house rentals. It did provide for a bio-diversity package and money and policy direction for closing the gaps.

We also had to make good the chronic under-funding by the previous government of core state functions.

These and other jobs have now been done and the money has been factored into budget baselines for future years.

Fiscal Outlook

Looking out to the ten year financial horizon, there is a substantial degree of freedom for fiscal slippage before our basic financial ratios - spending as a percent of GDP and debt as a percent of GDP - are breached

This tight fiscal stance is not a virtue in itself, but it is a virtue in current circumstances. In particular, a country with a large balance of payments deficit does need to lift the national savings rate, and the only short-term way a government can do that is to increase its own savings.

In addition, tighter fiscal settings take pressure off monetary policy and this should help to moderate the sorts of interest rate increases that otherwise might have seen as necessary by the Reserve Bank.

Business Confidence

Business confidence ebbs and flows. Over the past few months we have seen a number of surveys indicating declining business confidence even if those individual people surveyed were confident in the success of their own business.

Business confidence surveys are in danger of becoming defacto exit polls, albeit belated ones - to say one is confident about business or the economy is tantamount to confessing a Labour or Alliance allegiance.

However, I notice a number of business leaders have recently shown they have taken on board the warnings of talking themselves into an economic funk. I welcome this move to moderation.

I expect the effect of the decline in business confidence on economic growth to be small and short-lived as the positives created by the resurgence in the export sector become more evident. We are in the midst of a recovery based on wealth consumption to a recovery based on wealth creation. Manufactured exports grew by over 12 percent in the year to March 2000 and their value has topped $10 billion for the first time.

Finally, it is important to remember we are keeping all of the major legislative frame work for macro-economic management; The Reserve Bank Act, The State Sector Act and The State Owned Enterprise Act.

Lower Premiums with ACC

This week workplace accident compensation returns to a single state funded provider when the Accident Insurance (Transitional Provisions) Act takes effect from July 1.

The passing of this legislation was highly controversial with many employers predicting higher premiums and increased compliance costs if private insurers were taken out of the market.

In the event, average premiums with ACC are actually lower at $1.16 per $100 of wages than under the private sector. A number of employers who vehemently opposed the Act now welcome a return to ACC with lower premiums and the opportunity to cut costs further via the Partnership Programme or Safety Management Practices.

The Budget process began with bilateral negotiations with my ministerial colleagues. Ministers had to get down to serious one-on-one bargaining with either Associate Finance Minister Trevor Mallard or myself.

These negotiations were about discovering what was most important, reaching compromise positions and knowing when to say yes and when to say no.

I offer my congratulations to Trevor Mallard for realising that bilateral negotiations with the Minister for the Arts was not a good time to say no.