Venu Menon
Wellington, August 28,2023
The government has announced additional savings to fight inflation.
These savings are on top of the $4 billion in savings that were identified in May’s Budget 2023.
Prime Minister Chris Hipkins made the announcement while addressing the media after the weekly Cabinet meeting on Monday.
The inflation-easing savings will come from an austerity regime imposed on the public sector that aims to “trim a further $4 billion from government spending and have the books back into surplus as soon as possible.”
The PM was at pains to point out that the proposed changes would not impact frontline public services.
Hipkins blamed ongoing inflation on the global economic slowdown, sagging demand from China and falling global milk prices, which were accompanied by a spurt in crude oil prices. All of these were “adding to inflationary pressures here at home,” the PM noted.
Hipkins recapped the government’s earlier package of measures aimed at providing families and households relief from the cost-of-living crisis, which included the winter energy payment, removing $5 prescription charges, making early childhood education cheaper, and “making public transport either free or half-price for young people.”
Finance Minister Grant Robertson, who accompanied the prime minister, provided the nitty-gritty of how the additional savings were to be effected.
“Firstly, immediate savings: I asked all Ministers to look again at their agencies’ work programmes to identify savings that could be made immediately. This is focused on programmes that do not require all of the funding that had been allocated or where programmes have not commenced or could be phased, sequenced or delayed,” Robertson pointed out.
He said this exercise had “netted more than $1 billion operating and $450 million capital savings across the four-year forecast period.”
The government has also set limits on expenditure on consultants and contractors, a constant refrain of the Opposition parties in Parliament. “We are directing public agencies to cut back on spending on consultants and contractors to pre-Covid levels. This will equate to about an 18 % reduction in spending on these services,” Robertson said.
Taking a swipe at the National Party, Roberson said the government had inherited an expenditure of 13.4 % in 2017-18. “We reduced that to 10.4 % in 2021, before it spiked, largely due to Covid-19 -related expenditure, in 2021-22 at 14.6 %.”
The government aimed to get contractor and consultant spending to below 11 % of public workforce spending, adding up to an annual saving of around $165 million.
The third component was a spinoff to the reduction in spending on consultants and contractors, and involved agencies pruning their budgets from 2024 onwards. “We have set clear parameters for this exercise: frontline services and support payments are to be protected and excluded from the savings. Larger agencies are expected to find greater savings.”
Robertson estimated that around 19 % of the government’s total spend would fall within this exercise, which was expected to “save approximately $1.4 billion over the four-year forecast period.”
Budget allowances for the years 2025 and 2026 were to be downsized by $250 million and $500 million respectively, to $3.25 billion and $3 billion.
Robertson made it clear that these savings were pushing the limits and that “going further would start to undermine the investments in public services that have been made and those that are needed to support New Zealanders.”
“The National Party would need around $11 billion across the forecast period to pay for their tax cuts proposals above and beyond these savings,” Robertson warned. He said those who proposed “deeper cuts to pay for tax cuts skewed towards higher earners will be placing in jeopardy the public services that New Zealanders rely upon.”
Venu Menon is an Indian Newslink reporter based in Wellington
