Public service bosses called in as Government accounts plunge deeper into the red

Finance Minister Grant Robertson met with public service bosses today. Photo / Mark Mitchell

Former Deputy Prime Minister Winston Peters has alleged there is a $20 billion hole in the Government’s revenue as a result of the weakening economy.

Finance Minister Grant Robertson’s office said the statement was untrue. He later said in the House that “we have been driving savings in all budgets”.

“Ongoing discussions with the public sector are an integral part of being the Minister of Finance,” Robertson said.

In a press statement, Peters alleged public service chief executives had been called in by Public Service Commissioner Peter Hughes on Wednesday to “find and claw back cuts of 10 per cent of core Crown spending to the Consolidated Fund”.

A deficit of $20b is almost implausibly large. The Covid-19 deficit in 2019/20 was $23b, and the current deficit is forecast to be just $7b this year, although it is set to be about $18.2b over the next three years. The “hole” if there is one could an accumulation of deficits over multiple years.

The Herald has confirmed public service chief executives met with Robertson as recently as today. It is understood the fiscal outlook and spending restraint was at the very least discussed, although the idea of cuts of 10 per cent was not.

Treasury is currently putting together the Pre-Election Economic and Fiscal Update (Prefu), its most up-to-date set of forecasts.

Robertson said it was no secret that the Government’s revenue position had been worse than forecast.

“We’ve seen from the Crown accounts that where the Treasury had hoped we would be in the forecast, we are not. So we have an ongoing programme of work that involves discussion with the public service - that’s regular,” he said.

Bosses have also been advised to restrain spending growth - although this is hardly unusual.

Robertson foreshadowed tough decisions when answering a patsy question in the House, and in a press release issued earlier on Wednesday.

“Further hard choices may be required as we navigate a pathway through this deteriorating global environment,” he said.

Winston Peters is alleging a $20b hole in the public finances - a claim the Finance Minister denies. Photo / Alex Burton

Act leader David Seymour put out his own press statement alleging the hole was closer to $30b - a figure Robertson also denied.

“Act is aware of two meetings. Public Service Commissioner Peter Hughes called departmental chief executives into a meeting last Wednesday to demand a 10 per cent reduction in spending,” Seymour said.

The Herald understands public service chiefs did also meet last week. Robertson said he had “absolutely not” told the public service to cut spending by 10 per cent.

National Finance spokeswoman Nicola Willis said she had been aware of discussions in the public service about the deteriorating fiscal position.

She said it was a pity the Government was only now looking at restraining its own spending.

“There are now widespread leaks and reports suggesting the Labour Government is in financial panic mode,” Willis said.

At every opportunity the Labour Government has resisted the need to instil financial discipline and fiscal rectitude, she said.

“Now the cupboard is bare,” Willis said.

As the economy dips into recession, tax receipts have dried up, coming in billions of dollars lower than forecast.

The Government can choose to fund that deficit through borrowing or spending cuts.

Of concern to ministers will be the fact that revenue is coming in far, far lower than expected.

According to the Government’s most recent accounts, businesses paid 10.7 per cent less tax than expected in the 11 months to May.

The Crown received $2b less in corporate tax than the Treasury forecast at the Budget, less than two months prior.

It meant the Government’s deficit (measured by Obegal - Operating Balance Excluding Gains and Losses) was $2.1b larger than forecast.

The Budget Economic and Fiscal Update forecast a $7b deficit for this year, rising to $7.6b next year. The deficit turns into a $600 million surplus in 2026.

Everything will be answered on September 12, when Treasury publishes its updated forecasts in the Pre-Election Economic and Fiscal Update.

Thomas Coughlan is deputy political editor of the New Zealand Herald, which he joined in 2021. He previously worked for Stuff and Newsroom in their Press Gallery offices in Wellington. He started in the Press Gallery in 2018.