Extra $1.8b for education and health in Budget

Bill English. Photo / Mark Mitchell

Finance Minister Bill English says $1.8 billion of "low quality" spending will be cut from Government departments in next month's Budget and directed into higher priority spending in education, health and law and order.

The identified $1.8 billion is spending over four years. Mr English did a similar exercise in last year's Budget and identified spending of $2 billion over four years that has been redirected.

Mr English said he would be sticking to his limit of $1.1 billion for new operating expenditure in the Budget on May 20.

Some of the shift in spending would be within health and education. He indicated that the books would be in better shape than previously forecast but that it was not cause for celebration.

"There may be slightly stronger revenue and slightly lower spending on income support, but nothing that significantly eases our medium-term fiscal pressures," he said in a speech to the Wellington Chamber of Commerce.

There would be several more years of Budget deficits and increasing debt "and certainly no dramatic reduction in the $240 million that we need to borrow a week to roll over existing debt and to fund ongoing deficits".

Mr English warned, as he did with his first Budget last year, that most Government agencies would receive no increases over the next few years. "Not because they don't deliver worthwhile services but simply because we cannot allow debt to escalate further."

He expected more job losses in the public sector. It was critical that Government continued to "responsibly manage public finances on behalf of taxpayers. We can't take our eye off the ball".

After the effects of a domestic then global recession, New Zealand was forecast last year to have 10 years of deficits. That has been revised to surpluses returning in six years.

Meanwhile, Mr English made it clear yesterday that the cost of the "tax switch" he is planning in the Budget will take up to five years before it is cost neutral - suggesting that some of the changes to investment property tax breaks might be phased in.

The Government is expected to increase GST from 12.5 per cent to 15 per cent, cut the top income tax rate of 38c to 33c, and cut some of the tax breaks given to investments properties. Mr English said that the tax changes would be "broadly cost neutral" and were designed to tilt the economy towards savings, investment and exports and away from borrowing, consumption and property speculation.

Talking to reporters after the speech, Mr English said there were issues with timing. "Some tax change you can make quickly, others take a bit longer.

"So we have decided that rather than tie ourselves absolutely to year to year neutrality, we want to get the package right and there will be a bit of looseness around the fiscal impact. But over four or five years it will be fiscally neutral."

Labour's finance spokesman, David Cunliffe, said that National seemed set on "slashing more vital public services to fund tax cuts for its rich mates".

Mr English did not make any attempt to define what he meant by "lower quality spending".

"On past experience what he means by lower quality spending is savage cuts to training incentive allowances to help women get off the DPB, and more than a $100 million of cuts to the Pathways to Partnership programme which has enabled NGOs to provide community-based services. New Zealanders should be very worried."