Mood of the Boardroom: Aggressive spending cuts favoured over higher taxes

Business leaders would like a more aggressive approach to reducing the Budget deficit, and are emphatic it should come through spending cuts, not tax increases.

About 53 per cent of respondents to the Mood of the Boardroom survey agreed the Government needed to reduce the deficit more quickly, while 42 per cent disagreed. Seventy-three per cent of all respondents favour spending cuts and 84 per cent oppose tax increases. The level of government spending ranked fourth equal among concerns about the economy; the level of government borrowing was ninth.

Over the past two fiscal years core Crown expenditure has increased by $7.8 billion or 13.7 per cent. In the year ahead it is forecast to increase by a further 9 per cent or $5.8 billion (though that includes one-off transfers associated with the rise in GST, and the start of the emissions trading scheme).

Given the chunk the recession has gouged out of economic output, that means that over the three years to June 2011, government spending will average 34.5 per cent of GDP, up from an average 30.4 per cent on the previous 10 years. The ratio is forecast to drop to 32.4 per over the following three years.

The Government has adopted a Budget cap of $1.1 billion a year for new spending (not including inflation-indexed payments to superannuitants and beneficiaries) and expects to find a further $1.8 billion over four years which can be "reprioritised" from existing programmes. But respondents evidently believe it could do better. Top of their list of targets for a budgetary razor gang is bureaucracy, where 87 per cent believe savings can be made. Then comes welfare (54 per cent) and Working for Families (40 per cent).

The need for better targeting of spending was a theme running through the comments, with some referring to "middle class capture" of programmes or objecting to universal subsidies for visits to a doctor. "I still think there is loose spending on worthless programmes, while some of the areas being cut should not be," was one comment.

More see scope for savings in New Zealand Superannuation than in health and education combined. One respondent would like to see the Government give notice that eligibility for super is to increase over time to 67 or even 69.

Another said compulsory super in the Australian mode was probably the best way to go.