Bill English delivered the Government’s first budget on May 20. It was based on assumptions that the recession New Zealand was in would last at least until the end of 2009.

In fact, it transpires the recession had ended 50 days earlier on March 31. The second quarter economic growth of 0.1% brings the recession to an official end.

Now growth of 0.1% is barely growth. It is so weak even calling it anemic is unfair to other anemics. But it is certainly preferable to the US, which shrank a further 1.0% in the June quarter.

The BEFU assumed the economy would shrink in 2009/10 by 1.7%. Even an annual growth rate of 1.0% will be a significant improvement on that. So does that mean life can go back to normal?

Sadly no, the early exit from recession is helpful but not a game changer. The “upside” scenario in the Budget is still a nasty fiscal situation with a projected deficit of $6.3 billion this year and gross debt hitting $65 billion in 2013.

It is still unlikely the Government’s book will go back into the black until around 2015, and this is based on some arguably heroic assumptions such as new spending is restricted to $1.1 billion a year for the next seven years. How likely is it such fiscal restraint can survive the 2011 let alone the 2014 elections?

The Government has been reminding us that it is borrowing $400 million a week to maintain programmes and entitlements. That borrowing comes with a real cost. Every extra dollar of debt financing is a dollar not available for spending on health or education, or for reducing taxes.

It may still take the best part of a decade to have the books healthy enough that one could significantly reduce taxes, unless the Government wants to risk cutting existing entitlements such as Working for Families or interest free student loans. John Key won’t be doing that unless he gets an election mandate for it, and that is an unlikely re-election strategy.

The sad thing is that in around a decade, New Zealand could well have another recession. We get them on average every 10 years or so. The 1991 recession. The 1998 Asian crisis recession and the 2008 global credit crisis recession. It is foolish to think we may get through to 2020 with nothing but economic growth.

So just as the books are getting healthy enough to reduce taxes, we may have another fall into deficit and debt. And around 2020 onward the extra superannuation and health costs of an aging population will start to hit.

The problem is that the early departure from recession barely reduces forecast spending at all. Tax revenue rises, but New Zealand has a spending track that is so high, it will take a long time for the tax take to catch up.

The Government is trying to reduce the deficit by limiting future spending increases, rather than cutting existing spending programmes. And this is politically the sensible thing to do.

The uproar and protests from cutting existing spending programmes is not something you want to encounter unnecessarily.

However, economically it may turn out to be necessary. The simple fact of the matter is that Dr Michael Cullen’s spending spree over the past nine years may well turn out to be unsustainable. Rather than borrow $400 million a week to fund it, why not reduce it by $400 million a week!