A National government would make spending cuts on a scale not seen since the 1990 – 96 Bolger government.
That much was confirmed with the release of their Fiscal Plan on Friday.
Government spending is currently high as a percentage of GDP — as high as it was during the Muldoon government.
The question will now be whether an incoming National government might face the same wall of political opposition that the Bolger government did when it made the “Mother of All Budgets” cuts in 1991.
Polls showed that nearly one in every three of National voters at the 1990 election had abandoned the party after that budget by July 1992.
It was Winston Peters who capitalised on that opposition and left National to form NZFirst.
He may well be lurking in the background, ready to pounce again if National’s cuts provoke a political backlash.
That would make life very difficult for National.
National is seeking to make two separate tranches of cuts.
The first will be the savings required to fund its tax cuts.
It claims it can cut $1.518 billion through bureaucracy savings, closing Labour programmes and reducing the use of contractors.
That amounts to a cut of just over one per cent in all government expenditure.
That might be doable.
But there remain doubts about whether it can raise the $715 million it hopes to bring in from its foreign buyers tax.
If it can’t, then things would get sticky because, in their first year, the party has only $1.4 billion of unallocated expenditure.
However, that $1.4 billion depends on the party finding even more savings across all government departments.
National will be asking for a 6.5 per cent in expenditure across the board.
Jim Bolger managed to make big cuts in Government expenditure in its first few years.
But in its first three years in office, even the Bolger government, which implemented substantial cuts in spending, particularly on welfare, managed only to restrain government spending between 1990 and 1993 — spending (using a different measure to what is used today) rose by 23 per cent over that period.
To add more uncertainty to the situation, National Leader Christopher Luxon repeatedly refuses to specify where his cuts might be made other than in a general sense about cutting “back office” functions.
“We’re going to have better public service targets across all of our public services in New Zealand so that everybody’s focused on the outcomes and all the results that we’re trying to achieve so that we can actually deliver an improved advice for Kiwis,” he said.
“Now have we got that set of outputs and new tracks in place, we want CEOs to then be ruthlessly focused on sharpening their organisations up to deliver.
“That means stopping dumb projects that don’t lead to those outcomes. Stop them.”
You have to read between the lines to understand his next sentences. He has previously talked about the Ministry of Health employing 200 Coms staff.
“That means not filling in vacancies. That means actually moving the 200 call staff out to 200 nurses in the frontline.
“We want everything to be out of this, out of the back office into the frontline.”
He has also repeatedly emphasised at his daily press conferences that the decision as to what should be cut would be left to the Chief Executives of government departments.
But his deputy Nicola Willis, who has a more substantial knowledge of the way the public service and the Constitution works, stepped in to subtly correct him on Friday.
“The process we will run in the lead up to Christmas is that we will ask chief executives, together with senior public servants, to identify those areas and their own departments where they can make savings in reprioritisation,” she said.
“We’ll have those recommendations come up to the ministers.
“Ministers will be ultimately accountable for decision making.”
This is a list of the 20 biggest departmental spending increases over the term of the 2020 – 23 government.
|Spending Increases 2020 - 2024||$Thousands|
|Minister of Housing||10,398,430|
|Minister of Health||7,025,033|
|Minister of Revenue||6,006,348|
|Minister of Transport||4,591,882|
|Minister of Education||3,921,489|
|Minister of Defence||2,882,812|
|Minister of Finance||2,869,184|
|Minister for Disability Issues||2,239,969|
|Minister of Climate Change||2,196,484|
|Minister of Foreign Affairs||870,457|
|Minister for ACC||750,918|
|Minister of Local Government||544,821|
|Minister of Corrections||480,157|
|Minister of Police||437,820|
|Minister of Research, Science and Innovation||433,761|
|Minister for the Environment||402,747|
|Minister for Children||399,364|
|Minister for Treaty of Waitangi Negotiations||359,352|
|Minister of Conservation||324,645|
|Minister for Land Information||295,736|
One of the challenges that a Luxon government might have is that many of the big ticket spending increases, such as housing, have come with money that is disbursed by the central government to external agencies such as local government (for example, infrastructure funding) or service providers (like iwi).
A political backlash might be expected if those were to be cut.
A second challenge might be any costs imposed during coalition negotiations.
NZFirst is sure to want the re-establishment of the Provincial Growth Fund.
But questions on this possibility are simply greeted with National’s standard talking points.
“This is our view of how we think we will run our economy going forward,” Luxon said.
“Of course, New Zealand people will deliver what they deliver on October the 14th, and we will form a coalition that will be constructive and actually focus on these same goals of actually improving our economy, reducing crime, improving health and education.”
Ironically, despite all the brave talk of cuts, National’s actual impact on the deficit is not going to be substantial. By the time there have been three years of cuts, National will be only $800 million better off then Labour projected in the Pre-Election Economic and Fiscal Update.
That is largely because it is so large to begin with and because Labour is projecting a similarly stringent set of spending allowances going forward.
However, Willis argues that Labour is unlikely to meet those targets.
“They have broken every single spending commitment they have made, which means that the relative levels of restraint forecast in the Pre-Election Update are very unlikely to be achieved by them.”
NZInitiative fellow, Bryce Wilikinson, argues that current debt targets are too high.
“Treasury forecasts that net Core Crown debt on the longest-standing measure will not drop below 40% of GDP until 2026-27 and will still be above 30% of GDP in 2027. That is bad,” he said on Friday.
“The Public Finance Act requires governments to restore debt to a prudent level after some event has passed that caused heavy borrowing.
“Before Covid-19, Treasury’s advice was that a prudent level, using this measure, would be no more than 20% of GDP.
“I would expect it to advise the next incoming government that less than 20% of GDP on the same measure would be prudent.”
National has set itself a high political bar that it can make tough spending cuts regardless of the political backlash it may face.
Bolger did — but at a huge political cost; his party split, he had to fire his finance minister and he held power in his second term only by making an Opposition MP Speaker.
He had been in politics 18 years when he became PM; Luxon will have been in Parliament only two and a half.
It will be a big ask.