State pay cuts and job losses on the cards

Government spending may be cut back as National blames runaway wage bills on a "bloated" state sector.

There is speculation that Finance Minister Michael Cullen is demanding cuts in this and future Budgets to keep debt reduction on track.

That speculation is reinforced by comments in a hard-hitting Treasury report outlining the burgeoningstate-sector wage bill. Obtained by the Herald under the Official Information Act, the report warns that continued growth in the state wage bill will constrain new Government initiatives.

In the core public service and health and education sectors, the increase in the wage bill and employee numbers had cost between $750 million and $1 billion in each Budget over the past five years, a rise of about 8 per cent every year.

The January report says "re-prioritising resources" is the only sustainable way to manage the fiscal risks, indicating that spending cuts and job losses may occur.

"A range of projects, considering ways in which ministers can be supported in making re-prioritisation decisions, are currently in progress and the paper identifies these," the report says.

But the version given to the Herald contains deletions under the act and does not detail the projects.

Dr Cullen's spokeswoman said yesterday: "The initial run of the Budget numbers didn't play out to a sufficiently credible long-term debt track consistent with the Government's long-term fiscal objectives."

On the wage bill, she said Dr Cullen had been stressing the need for restraint in state spending for some time.

State employees

* May 1999 245,201
* September 2004 278,831