Post-Cabinet press conference with Prime Minister Chris Hipkins.
Prime Minister Chris Hipkins and Finance Minister Grant Robertson have announced a sweeping package of public service savings, cutting the Government’s cloth as clouds gather over the New Zealand economy.
Specific programmes, like the Covid-19 emergency response, have been cut or have had “underspends” returned to the Crown because they are no longer necessary, but the largest cuts come from a sweeping reduction to agencies’ baseline expenditure.
Half a billion dollars has been saved from the 2025/26 Budget and subsequent Budgets, by trimming agencies’ baselines by between 1 and 2 per cent. The largest cuts came at MBIE, which had its baseline cut by $110.8m, followed by the Ministry of Education, which had its baseline cut by $69.7m.
The Government said these cuts do not affect frontline services.
National finance spokeswoman Nicola Willis said the Government has spent Kiwis' money with reckless abandon, Photo / Mark Mitchell
National’s finance spokeswoman Nicola Willis said the cuts were “far too little and far too late”.
“Today Grant Robertson has reached peak Labour. After six years of spending New Zealanders’ money with reckless abandon, he’s now finally admitted he has a problem - six weeks out from an election,” Willis said.
National has not yet released its own tax plan, or its spending plan. Willis said the former would be released this week and it would be funded entirely by spending re-prioritisations and revenue changes, possibly revenue hikes.
“That tax plan is fully funded, which is to say it will not require a dollar of borrowing or extra spending. Instead, it will be funded through a careful programme of spending reprioritisation and targeted additional revenue measures,” Willis said.
Act leader David Seymour said the cuts were “too little, too late”.
“He’s had a chance to manage the books responsibly. But all he’s done is given New Zealanders a cost of living crisis,” Seymour said.
Act Party leader David Seymour said the Government has had its chance to manage the books. Photo / Marty Melville
The Green Party said Labour should reconsider a wealth tax so it did not need to look for cuts.
“The Labour Government is constraining itself unnecessarily by refusing to change the tax system to raise revenue from the wealthiest few which can be used to support everyone in Aotearoa. The time is now for a wealth tax,” said the party’s finance spokeswoman Julie Anne Genter.
Unlike previous government savings exercises, Robertson said the money freed up here would not be spent on other things, but it would be booked as a permanent saving.
“The Government’s published accounts for the eleven months to the end of May showed that tax revenue was more than $2 billion behind where Treasury had forecast it to be at the Budget. It should be noted that government spending was in line with forecasts during this period.” Robertson said.
“Since May we have seen further deterioration in the global economy, particularly in China. 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,” he said.
The Government is reducing consultant spending to below 11 per cent of Public Service workforce spending, saving about $165m a year - an 18 per cent reduction on the current level of spending.
The Green Party's Julie Anne Genter said the Labour Government is constraining itself unnecessarily by refusing to change the tax system. Photo / NZME
This will likely put pressure on National’s ability to direct that money into its childcare policy.
The second landmine is the Government has trimmed its operating allowance for the 2025 Budget by $250m and the 2026 Budget by $500m.
An operating allowance is the amount of new money the finance minister can allocate during a Budget. By trimming these allowances, Robertson is making it more difficult for other parties to fund their election commitments.
Other parties could decide to increase the allowances anyway, but this would mean pushing back the path to surplus and taking on more debt. Robertson has had far larger allowances than Labour promised at the 2020 election, leading to a large increase in borrowing.
Robertson said he was able to trim the allowances “as inflation falls and still be able to meet the cost pressures we face as inflation declines and solid economic growth is forecast”.
Robertson hinted the changes would be enough to keep New Zealand on track to hit surplus in the forecast period.
“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,” Robertson.
“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. Likewise broad sweeping statements about slashing public services is also destabilising and disingenuous,” he said.
Thomas Coughlan is deputy political editor of the New Zealand Herald, which he joined in 2021. He previously worked for Stuff and Newsroom in their Press Gallery offices in Wellington. He started in the Press Gallery in 2018.
