Spending cuts, tax cuts on way

Finance Minister Bill English. Photo / Mark Mitchell

The government is adding another $1.8 billion in spending cuts to the $2 billion already announced, over the next four years to help get New Zealand back into surplus, Finance Minister Bill English said today.

In one of a small number of pre-Budget warm-up events, English confirmed for the Wellington Chamber of Commerce audience that the starting point for tax reform was "lower personal taxes across the board are a good thing" because they rewarded productivity and effort required to get the economy growing faster.

"We have this opportunity at a time when many other countries will be forced to increase taxes," English said. "This is an important competitive advantage for New Zealand."

However, there would no "lolly scramble". The tax reforms would be "broadly cost-neutral, with a focus on fairness", with "the vast bulk of New Zealanders better off" in the event that GST is raised to 15 per cent.

English said the economic recovery remained patchy, and that while slightly more tax revenue and a little less welfare support was likely, the outlook for Budget deficits for the next few years remained similar to that announced in the December Economic and Fiscal Update.

"In the Budget last year, we identified $2 billion of lower quality spending over the subsequent four years to redirect into higher priority areas.

"In this year's Budget, we will find another $1.8 billion of low quality spending between now and 2014 for reprioritising into higher priority intiatives."

Public service chiefs were starting to get accustomed to knowing there would be no spending increases for most government agencies for the next three or four years, English said. A $1.1 billion fund available annually for new spending would be limited to annual growth of 2 per cent from the 2011 Budget.