KEY POINTS:
The Government says a report accusing it of spending on non-productive areas is lightweight and shows a lack of understanding of what departments do.
Associate Finance Minister Trevor Mallard yesterday responded to the study led by ANZ chief economist Cameron Bagrie.
The study examined the spending mix - how much was spent on front-line activities, such as welfare benefits, health and education services and police, rather than on "back office" (departmental outputs).
"What we find is that back-office [departmental] expenses have exceeded our definition of front-line spending, resulting in an upward trend."
Growth in departmental outputs has averaged close to 7 per cent a year since 1997 while front-line spending increased by 5 per cent.
Nominal GDP growth within the economy averaged 5.5 per cent. Government spending as a proportion of GDP has fallen from 42 per cent in 1995 to 39 per cent in 2001 and risen back to the OECD average of 40 per cent in 1997.
Mr Bagrie said if the back-office ratio had remained in line with front-line spending then there would have been an extra $1 billion free for other activities and a cumulative saving since 1997 of $3 billion. Mr Mallard disputed the findings.
"The economist's analysis is unfortunately very lightweight and shows a lack of understanding of what departments' budgets actually pay for," Mr Mallard said.
According to Mr Bagrie, defence spending, police, corrections and courts, school property costs, special education services, Work and Income services, Child, Youth and Family services, and Inland Revenue call staff were all back-office spending.
"This type of spending accounts for more than $6 billion or over 60 per cent of all the departmental output spending which Mr Bagrie says is back office," Mr Mallard said.
The report did not acknowledge overlaps between back and front office.
Mr Mallard said the report ignored changes, for example the Health Funding Authority being moved into the Health Ministry when discussing the growth of department spending.
United Future leader Peter Dunne said he agreed with the study and said greater transparency was needed.
- NZPA
