Spending review advanced due to small parties' demands

Finance Minister Michael Cullen today said the Government would bring forward a review of state sector spending to see if savings could be made to pay for policy concessions extracted by New Zealand First and United Future.

National finance spokesman John Key said today the overall cost of getting the new government would be "very expensive".

New Zealand First and United Future are supporting the Labour-led Government on confidence and supply in return for policy concessions.

NZ First leader Winston Peters -- who campaigned on large increases in the rate of superannuation -- got a lift from 65 per cent of the average wage to 66 per cent from April 2006.

Dr Cullen said this would cost about $80 million a year.

By Treasury's calculation that will be about $4 a week in the hand for most superannuitants.

Prime Minister Helen Clark said the second significant item in terms of cost was the increase in police numbers, which NZ First has also extracted out of Labour.

Labour promised an extra 250 police officers before the election but reached agreement with NZ First for an extra 1000.

Helen Clark said this would cost $75 million a year once fully implemented.

Mr Key today put the cost of the increased super rate at $100 million a year.

The number of superannuitants would double in the next 20 years and the cost of pre-funding the super scheme would have to go up, which over the next decade would cost something like $2 billion, he told National Radio.

"On top of that you've got to remember that these are fundamental changes. The fact that Winston Peters got this today means it will be back on the agenda when things start getting a bit rough for this Government as they surely will.

"I think you're talking big numbers here."

Mr Key said that new Revenue Minister and United Future leader Peter Dunne was also talking about eliminating the proposed carbon tax ($360 million) and reducing the company tax to the Australian rate of 30 cents in the dollar ($650 million and rising).

Mr Dunne would also come under pressure to eliminate the capital gains tax Dr Cullen had proposed.

"Those three things alone were $1.15 billion, add in (the United Future policy of) income splitting you're probably at another, I don't know, $500 million to $1 billion," Mr Key said.

But Dr Cullen said Mr Key's criticism were a bit rich given that before the election National had promised $3.9 billion a year in tax cuts.

Labour would not have had as a priority lifting the relativity rate of New Zealand superannuation over the next three years but agreements between parties required trade-offs, Dr Cullen said.

Dr Cullen said the Government would look at spending in the state sector to see if "minor changes" could be made.

The Government had planned to review state sector funding in any case but the deals reached meant it was more important "that we push that along".

Other projects might be slowed down to accommodate the new spending, with decisions on these made before the budget.

"These aren't huge numbers we're talking about."

Dr Cullen also said Labour got agreement from the parties supporting it to get its Working for Families and student loans packages through Parliament.

"Those are bottom lines for us and we have agreements with New Zealand First, United Future and the Green Party to ensure those measures will pass. New Zealand First will vote for them if it's required to do so."

- NZPA