The Government will cut $3.4 billion from its four year operating budget, as it works to keep debt under 30% of gross domestic product and return the Crown accounts to surplus.
Budget 2023 expanded annual spending and increased future operating allowances, based on Treasury’s optimistic forecasts, which have already proved wrong.
When the Crown accounts were released in July, tax revenue had already fallen more than $2 billion behind what Treasury had forecast just a few months earlier.
This month, economists at Westpac NZ estimated the tax shortfall would continue and deficits would almost double across the forecast period.
This would put Labour at risk of failing to achieve its self-imposed fiscal rules, which are to keep net debt below 30% of GDP and return the operating balance to surplus.
Finance Minister Grant Robertson reportedly summoned public sector bosses into meetings to discuss possible budget cuts at the start of this month.
On Monday, he announced some agencies had been asked to find permanent cost savings including cutting back on hiring contractors — which has been a hot button issue.
“Since May we have seen further deterioration in the global economy, particularly in China,” Robertson said in a press release.
“This will continue to have a direct impact on the New Zealand economy, and it is important that the Government responds to meet our balanced and responsible fiscal goals.”
Cut the cloth
A total of $4 billion of savings had been found and would be banked to offset deficits. This money would not be available to be reallocated into new initiatives.
Public sector agencies were required to trim 1% or 2% from their existing baselines, while protecting front-line services. Some agencies, such as police, have been excluded entirely.
The cost cuts will come from about 19% of the Government’s expenditure, Robertson said. Benefits such as superannuation, the largest single line item, were not touched.
Budgets 2025 and 2026 will have their operating allowances cut by $250 million and $500 million, respectively.
“We can do this as inflation falls and still be able to meet the cost pressures we face as inflation declines and solid economic growth is forecast”.
“All these measures taken together will help ensure we meet our fiscal goals to keep debt under 30 percent of GDP and get the books back into surplus in the forecast period.”
The Ministry of Business, Innovation, and Employment took the biggest nominal hit, with more than $110 million cut from its $5.5 billion budget.
Even the very small agencies took cuts, for example the Ministry of Women shaved about $100,000 from its annual budget of $14 million.
Frontline staff in education, health, and defence were excluded from the cost cutting exercise, but back office costs were cut by 1% or 2% to save $71 million — mostly from education.
Contracted out
The Government has asked for contractor and consultant spending to be cut to below 11% of total workforce spending, which would save about $165 million per year.
This figure was 14.6% in 2021, which was up from 10.4% 2020 prior to the pandemic and above the 13.4% level it was at when National left office in 2017.
Robertson warned there was no room in the budget to make any big election promises.
“We have been clear that this cannot be a big-spending election. Uncosted, untargeted tax cuts like those promised by the opposition are simply not affordable.”
“We need a balanced approach that protects the public services that New Zealanders rely upon, while making sure we cut our cloth and have a sustainable financial base to take forward”.
The $4 billion in total savings includes $500 million of capital expenditure that had been planned in the next four years, in addition to the $3.4 billion in operating expenses.
60 Comments
$100k from $14 million? Heck, I could cut that from half a dozen households, let alone a Govt Dept. How about sacking 10% of staff - that would free up $500k alone (probably more, as that's based on 2021 personnel costs). I also note their budget in 2021 was $9.8 million so how did it blow out to $14 million in 2023?
Boy, ACT really have their work cut out for them.
On the contrary, it's going to be a walk in the park for ACT to find the cost savings.
If I was in a "not achieving anything" government job I would be putting my hand up for redundancy today. It will be much easier finding another job now than in a years time when you will be just one of thousands.
I believe the promise from National and Act also indirectly impacts thousands of jobs in consulting and contracting, i.e., the private sector. You will then have several thousand high-paid workers, mostly in Auckland and Wellington, losing their fat pay checks and not spending in the wider consumer economy.
Basically, a sharp pullback in public spending will certainly cause pain for many public workers as well as private workers and businesses.
" impacts thousands of jobs in consulting and contracting" At Easter this year a relatives friend, who is a govt. consultant/contractor, mentioned that about six months before an election work just about dried up until about six months after an election when it started picking up again, irrespective of Labour or Nats!!!.
My immediate thoughts are-
1. Labour is becoming increasingly desperate to hang on to power
2. Robertson knows the books are in worse shape than has been conveyed publicly
3. The amount of reduced spending is minuscule as a % of the total govt spend.
4. Most of the cost reductions don’t occur for 3-4 years.
My immediate thoughts are "anything you can do, I can do better!" - this isn't an election run up we're witnessing. It's a schoolyard fight. Entertaining, but still waiting for either major party to stop pussy-footing and land a meaningful blow. Getting a lot of social media advertising and the state of it all is pretty appalling; "Look at them, look at them! don't look at us pls... "
As with roads, transport, education, all that was previously being lambasted as odious policy from the opposition, suddenly is the brainchild of Labour. Reactive, desperation reeking of panic and outright knee jerk. Only fools would think the electorate is foolish enough to fail to see the hypocrisy at play here.
So just done some googling. Feel free to correct me but I think I am right in saying Labour has increased the govt spend by approx $15billion per annum since they came to power in 2017. Now they are saying they will cut spending by $3.4billion over 4 years? ie they will reduce annual expenditure to only $14.2billion per annum more than when they came into power?!?!
Yeap pretty much. Government spending under labour has gone up from $81 billion in 2017/18 to $162 billion this year. So that has doubled. The vast majority of that money is not reaching the front lines. Pay for doctors, teachers, police’s officers etc haven’t doubled. Hospitals are full, not brought doctors, crime is out of control, schools class sizes are bigger than ever before. So most of that increase in spending is not reaching the front lines. So I would say government spending could be cut by something like $30 billion without it affecting front line services.
Or money could actually be invested properly in the economy instead of divisive social engineering. The electrical grid needs significant infrastructure investment right now especially with the switch away from fossil fuels in this country.
Not reaching the frontline! How sadly true. NZ was ranked 39th in the world in preparation for a pandemic. Yet when covid struck this government embarked on a restructure of MoH headquarters, pouring in $millions, consultants galore earning heaps. At the same time, at the frontline the situation was desperate. For instance White Island, the terrorist shootings had already exposed insufficient ICU capacity. Sure a restructure may have had its merits (haven’t shown up much so far though) bit in the midst of a pandemic! That was a dereliction of management and duty to the people of New Zealand surpassing anything similar by any previous government and to my mind at least, sums up the clueless, ideological and woolly thinking that has been inflicted on all of us now for six years.
Correct me if I'm wrong.
Payraise have been made for nurses , teachers and polices.. isn't it ?
Assuming govt money is public money which they can print as much as per the policy guidelines, there will always be winners and losers.
I am surprised why no-one here is complaining about the high level of household debt in NZ ! With these highest , unaffordable debt in the world, government has to spend at some point to balance it out.
Yeah there have been pay raises for a lot of them, but over that time the pay rises have been what, 5, 10 percent? Certainly not more than 15 percent. Frontline staff haven’t doubled, or increased 50 percent yet alone 20%. If memory serves Police actually had their budget cut slightly.
Remember government spending has increased 100%.
A lot of our inflation is probably been caused by the MASSIVE increase in government spending. Printing money is almost always a bad idea because of the inflation it causes.
household debt is definitely also a massive problem, but it’s not the topic of the above article.
Inflation always happens after a long prolonged period of printing money (Or what ever you want to call it now). They say inflation started with covid and supply chain problems, but there wouldn't have been a supply chain problem if the Governments around the world hadn't pumped billions and billions of "fake" money into the economy to "support" us through covid. The support the Government has given us during the follow "Cost of Living Crisis" will ensure inflation will be higher longer. Unfortunately nobody wants to reduce their standards of Livings and will continue to ask the Government to "help" us out.
Yes, have personally witnessed KO buying houses at ridiculously inflated prices simply because they had no limit on their budget, and they got into a bidding war with an Asian buyer at auction (a whole other story!). Along with townhouse developers paying stupid prices for old houses on big sections, the bottom end of the housing market literally doubled during Covid. And dont forget the underwriting of Kiwibuild developers, who jacked up their prices of homes because they knew if they didnt sell the Govt was forced to buy them at that price. So many ways this Govt has caused the housing crisis, I don't have enough time to type them all up.
Had a 3rd or 4th year carpenter (builder) apprentice help me with some demolition and deck building (he did the heavy duty work). Paid him about 2.5 times what he gets as an apprentice and he worked two Saturdays for about 5h each. Job isn't finished. Didn't pitch up this last Saturday. Haven't heard from him so assume he has too much other work and the rate I'm paying him perhaps insufficient so appears no construction slack in New Pymouth.
100%
an average new home pays GST of around 100k.
If dwellings built per year reduce by 10,000 across the country - that’s being conservative - then that’s one billion in revenue lost
Then factor in all the GST revenue lost on all the inputs that go into house building, and we could easily be talking 1.5-2 billion less revenue per annum
Good point re: GST. Agree
Still many companies have been doing well and net migration quite high. Although, as I have said before, many / most of the immigrants are not highly paid so may not be spending that much in the economy.
Yeah KO are a basket case. A new government should do a huge overhaul of that place. It’s not like they have even added that much extra public housing (in net terms)
I think you are right that it is obscene govt overspend that is the biggest issue
What? Grant Robertson trying to be fiscally responsible? Shame he didn't apply the same rigor when he was dishing out the free money to supposedly Covid affected businesses without taking proper steps to check their entitlement. Doesn't even have a great interest now in trying to recover those payments that weren't justified and which I have read actually run into the billions of dollars themselves.
Slight correction, he's trying to look like he's being fiscally responsible. Its nothing but spin. Since Govt spending has doubled under Labour, these cuts are miniscule. He's just trying to head off NACT claims that the Labour Govt is fiscally irresponsible, which it is. If they were serious, they would simply reset all Govt department budgets to that which they had in 2019 pre-Covid. Which is what ACT should do. Then abolish Govt departments that only produce ideology reports and nothing else.
Shame he didn't apply the same rigor when he was dishing out the free money to supposedly Covid affected businesses without taking proper steps to check their entitlement.
I know crazy amount of money was spent during that time ; but I would say such was the fear caused by economic experts and medical experts.
I guess initially every employers were happy - but later when they found how unfairly others were paid more , they started complaining.
Also why we think that govt debt need to be repaid soon ? Its the unaffordable household debt ( mortgage mainly ) is the main worry ; as this really need to be repaid.
After months of denial!!!!!! and attempts by opposition parties pointing out the wasted spending, now they pull a knife out of their denial drawer and take to cutting and pruning expenditure, these are the liars that are running our country, I've been on this planet for 74 years, this is by far the worst Government I've had to endure, my goodness one lives in hope that they've only got a few weeks left to deceive us!
Sadly, they had a chance, they had notice, they were warned. They could have been dynamic superstars. Instead they deliberately ran head long into the hole taking everyone with them. Can’t figure if it’s dogma or incompetence. Either way comments like yours will allow them to swan off.
When Liebour introduced their election slogan (well before they starting “campaigning”) I couldn’t help but hear “I’ve got it in for you”. Now every billboard I see I have some sort of reverse dyslexia / countdown effect and can only read it as “I’ve got it in for you”. It’s highly contagious as everyone who I tell has immediately succumbed and can’t stop passing it on.
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