Treasury praises departments' Budget spending cuts, and looks for more

The number of Budget bids from Government departments for extra money halved from last year, and 25 per cent of them were "savings" bids, says Treasury Secretary John Whitehead.

"That's a significant and positive change in approach," he told an invited audience of analysts, officials, academics and journalists at the Treasury yesterday. .

Departments need approval even for spending cuts, to ensure they are areas the Government wants cut.

Mr Whitehead reinforced the themes that Finance Minister Bill English has been pushing - getting better quality spending out of the public purse and keeping debt under control.

And he made it clear there will be greater scrutiny of Government departments' spending.

"We focus too much on new spending and not enough on the very significant base, even though polices introduced five or 15 years ago, may no longer be as effective or fit Government objectives."

He criticised the public service "year-end spend-up", in which departments spend any spare money they have, fearing that if they don't, their grants will be be reduced the following year.

Several senior chief executives - and private sector consultant Brian Roche - helped the Treasury to make savings in departments, but Mr Whitehead rejected any suggestion of a 5 per cent target for cuts.

But all chief executives would be able to "think hard about better utilising 5 or even 10 per cent of their baseline".

Excluding the $18 billion spent on income support and $2.5 billion spent on interest left about $38.5 billion that could be used better, he said.

"It may be about stopping some things; it may be about starting others. It would certainly be about new ways of working and service delivery."

Mr Whitehead said in dollar terms there had been "dramatic" growth in public spending in recent years, from $37.5 billion in 2002 to $57 billion last year.

New Zealand is on a negative outlook with credit rating agency Standard and Poor's and Mr Whitehead sought to explain how credit rating agencies and investors thought the economy could affect people.

New Zealand was competing for borrowing with large countries, and maintaining investor confidence, including a strong credit rating, was essential if the Government, companies and households were to obtain the money they needed.

He said the experience of Ireland, which had a recent credit downgrade, a downgrade for New Zealand would lift interest rates by 1.5 per cent.

That would mean another $600 million in interest on Government debt each year - equivalent to two large new hospitals.

"And the country's credit rating determines how much many of our businesses and our households have top pay."