Government eyes more spending cuts as patience with economic strategy frays

NZ Herald

4 days ago

Seymour said the Government was getting a few 'whispers' about the next Budget.
'Last year, we saved $115 million. [The] year before that, half a billion,' Seymour said, referring to the savings attributed to him personally.
'Let's see if we can't save more next year,' he said.
Seymour said Budget 2026's savings exercise would not be 'radically different'.
He said there was still wasteful spending to be found, noting the last Labour Government had inherited core public spending of about 28% of GDP and left behind a state spending about 33% of GDP a year.
Even accounting for increases in superannuation spending and debt servicing for the pandemic, Seymour reckoned there was still a large portion of spending that could be trimmed.
Seymour said Finance Minister Nicola Willis had put pressure on Treasury to 'upgrade the supply of information', allowing better quality budgeting.
Finance Minister Nicola Willis said more savings could be found. Photo / Mark Mitchell
Willis said funding new spending initiatives by cutting spending the ministers deemed less essential was important, given the size of the Government's deficit, which Treasury forecasts to be $14.1b this year, or 3.1% of GDP.
'The Government's got a great track record of reprioritising funding so that we can put more investment into the things Kiwis care about: schools, hospitals, roads, police,' Willis said.
Willis said the Government's first Budget found $23b in savings and the second found $21b. These figures are calculated over multiple years.
'What the number will be in our next Budget is yet to be worked out,' Willis said.
When asked whether a similar dollar figure of savings could be found for the 2026 Budget, Willis said, 'we'll see'.
Willis said she did not think all the low-hanging fruit had been found when it came to savings.
'There are always areas where we should be demanding better value for taxpayers' money and I always ask myself, 'can I really justify spending that money when a New Zealand household could probably do with it in their wallet?'' Willis said.
Willis said each Budget approach was similar. She sat down with the Prime Minister and her associate Finance Ministers, Seymour, Chris Bishop, and Shane Jones.
'We sit down together. We identify key themes where we think that there is room to find value. We also identify programmes of work that we think ministers should undertake to find savings,' she said.
Willis said it was 'far too soon' to describe the nature of the savings programme.
It is not uncommon for a Government to cut spending it no longer thinks is valuable, to pay for something else.
The last Finance Minister, Grant Robertson, also undertook reprioritisation exercises prior to his budgets although these were far smaller in quantum.
In 2018, word of Labour's Budget 2019 reprioritisations exercise leaked to National, who accused Labour of covert spending cuts.
Asked whether three successive savings programmes in a row risked prolonging negative economic sentiment, Willis accused people who made that argument of being 'fiscally and economically ignorant'.
'We have one of the largest deficits in the OECD, which is to say we are spending billions more than we are earning as a country. Compared to many countries around the world, we are in a more deficit position than they are.
'To say that when we are running a deficit ... is economically ignorant. I have heard that ignorance from our political opponents. They need to get a maths textbook,' Willis said.
Labour leader Chris Hipkins compared Luxon and Willis to a washing machine. Photo / Mark Mitchell
Earlier this year, the Herald spoke to the big three ratings agencies for their view on the public finances.
New Zealand maintains a high credit rating. While the agencies said they were not alarmed with the fiscal situation at the moment, they wanted to see evidence of improvement.
S&P's primary analyst for NZ, Martin Foo noted that NZ's general government balance, his company's preferred metric for whether the Government was in surplus or deficit, showed a deficit greater than 6% of GDP - putting NZ in the realm of France and the United States, countries known for running huge deficits.
The Government's fiscal and economic strategy is partly to reduce the deficit to help put downward pressure on inflation and interest rates, stimulating confidence and economic recovery.
Month after month of gloomy economic data, only partly offset by a recovery in the primary sector, has frayed voters' patience in that strategy, polling suggests.
The most recent Ipsos Issues Monitor Poll found voters trust Labour more on the cost of living, the first time Labour has come ahead in that poll since before the last election.
Voters still trust National more on the overall economy, according to that poll. In a speech ahead of his post-Cabinet press conference on Monday, Luxon said the Government needed to 'double down' on its economic strategy.
'The most important thing we can do to make you better off is to double down on our economic plan,' he said.
'Spending more, taxing more and borrowing more as Labour and other parties advocate for didn't work in the past and it won't work in the future,' Luxon said.
Labour leader Chris Hipkins shot back, noting the length of Luxon's post-Cabinet speech, which he gave alongside Willis.
'I think we should start calling them Fisher and Paykel because they've got more spin than a front-load washing machine,' Hipkins said, referring to Luxon and Willis.
Hipkins has come under pressure from the Government for Labour not releasing policy of its own.
He defended this on Tuesday morning, saying 'we will be doing policy'.
'But some of those bigger issues around spending, borrowing, taxation, many of those will have to wait until closer to the election,' he said, noting National finalised its tax policy less than two months before the election date in 2023 - although it published a version of its tax policy about a year earlier.