Time to rein in costs, warns Cullen

Michael Cullen

A reshuffle of priorities is needed to ensure the Government stays within its budget targets - and that may mean less for education and health, says Finance Minister Michael Cullen.

During a grilling at yesterday's finance and expenditure select committee, Dr Cullen outlined his concerns that spending in those areas had outpaced economic growth.

He also revealed that more taxpayers' money might have to be ploughed into the country's rail network, which he said was in an "appalling" state.

His remarks were immediately attacked by his opponents.

National's finance spokesman John Key said Dr Cullen had thrown new money at departments for every request and was now ducking for cover.

"These things are like a snowball - they just get larger and larger. The advice he's been getting from Treasury is that the ship's out of control."

Dr Cullen first flagged the need to rein in spending in a sober warning to Cabinet ministers a month before the Budget.

His April 11 paper, released yesterday, said current spending growth was unsustainable if government fiscal aims were to be met and "significant reprioritisation" would be important in future.

 

Dr Cullen told the committee that health spending had grown by an average of about 7 per cent a year over the last decade and that level - projected out indefinitely - "gets into a somewhat worrying trend".

Health spending has risen from about $6.6 billion a year when Labour took office to $9.6 billion.

The Government is now studying the long-term sustainability of funding of health and education, particularly tertiary education.

Asked by Mr Key about bringing forward tax threshold changes to next year instead of 2008, Dr Cullen said that would be a bad idea. It would boost inflation and interest rates. Larger tax cuts would have to be funded by borrowing or by cutting government services.

Act leader Rodney Hide said: "The forecast is for government spending to grow 45 per cent faster than our economy and what this shows is the key to tax cuts is fiscal discipline, something we haven't seen from Labour for five years."

Billions bigger

Forecast core Govt spending (excluding SOEs)*

2004 $41.6b (actual)
2005 $45.3b
2006 $48.2b
2007 $51.3b
2008 $54.8b
2009 $57.2b

*Figures are June years.

- additional reporting, NZPA