Key rejects legislated spending cap

Prime Minister John Key has swiftly shot down speculation that next month's Budget would include an announcement on some form of legislated cap on Government spending.

"We have our own self-imposed cap," he said referring to the $1.1 billion limit on new spending announced last year.

The Act Party favours a legislated cap which would freeze government spending in real per capita terms, that is, only allow spending to increase in line with inflation and population growth unless over-ridden by a public referendum.

The 2025 taskforce chaired by Don Brash recommended legislation requiring the Government to set a medium-term target for its operating spending either in real per capita terms or as a share of GDP.

Business Roundtable chief executive Roger Kerr in a column in yesterday's Dominion Post newspaper said the Budget was expected to include an announcement on some form of legislated cap.

"I was surprised to see those comments," Key said at his post-Cabinet press conference.

The Budget would not include a regulated cap on government spending, he said.

Key said he did not support measures limiting something to a specified share of GDP.

Many governments had responded to the global financial crisis over the past 12 to 18 months by increasing their spending as a percentage of the economy. "If they are talking about something different, we could look at that."

The Government's confidence and supply agreement with Act required it to support referring Act's Taxpayer Rights Bill to a select committee within six months "with the aim of passing into law a cap on the growth of core Crown expenses."

That bill's explanatory note refers approvingly to a similar measure adopted by the US state of Colorado in the early 1990s.

But critics point out Colorado is not a nation state, dispute the contention that its taxpayer bill of rights explains its economic growth, claim that business groups came to oppose the measure because of its impact on skilled labour supply and infrastructure and say it is one of the reasons Democrats regained control of the state legislature and governor's mansion in 2006, having lost them in the 1990s.