Govt reviews charges in bid to cut deficit

Press, 25 February 1986, Page 23

Govt reviews charges in bid to cut deficit

By

MARTIN FREETH

in Wellington

Higher charges, further removal of the tax concessions and more State sector reorganisation are all likely to be on the agenda in the Government’s drive to hold down the 1986-87 fiscal deficit.

“Any fool can get the Budget deficit down one year,” the Minister of Finance, Mr Douglas, was drawn to comment this week. He is now working hard to see that a reasonably favourable result this year is not marred by a blow-out in 1986-87. Mr Douglas has made it clear that the annual Government expenditure review now on is dealing with fundamentals. Spending priorities are being reviewed systematically with an eye to shifting activities of a trading nature away from funding by tax revenue.

The fiscal approach of New Zealand Governments has traditionally focused on closing the deficit gap from the expenditure side. The 3 per cent cuts and the sinking lid on State employment were dramatic examples from the Muldoon era.

The Douglas approach is throwing weight on to the revenue side. This week’s decision to increase Post Office charges is the widest application yet of the “user pays” policy spelt out in selecterf areas last year. The Post Office is the obvious area within the existing organisation of State activities for the policy to be applied, especially in the face of the big capital Investment programme in the coming year.

Mr Douglas indicated this week that the present review included “possibly

charging for some services we may not have in the past.”

Another area of revenue gain apparently being looked at is the reduction of concessions built into the tax system. The Government has already indroduced programmes to phase out concessions for export performance, and export market and industry development. The Under-Secretary for Trade and Industry, Mr Peter Neilson, tipped further moves to cut concessions this week, when he referred in a Wellington address to big savings from the removal of tax expenditure. Concessions represent an expenditure by the Government through the tax system.

The Neilson said he would not be surprised if the present review did not identify savings potentially worth more than $1 billion a year by 1988-89. “I would expect a considerable proportion of these savings to come from removing tax expenditure rather than from direct expenditure reductions,” he said. Mr Neilson was not referring to the personal tax concessions now being built into the social welfare system, but to concessions which favour particular business groups and which have long gone unquestioned because of their historical place in the tax structure.

“They may have been approved when they cost SSM but are now worth, say SSOM, Mr Neilson said.

Structural reorganisation of Government activities constitutes the third area where revenue gains are being sought. The economic statement in December gave expression to the Government’s drive to put more efficiency into the State sec-

tor and to separate trading and “social" activities so that the former can be made to run along more commercial lines.

Again, the Post Office is an obvious target for efficiency gains through management changes. The Postmaster-General, Mr Hunt, has now received the reports of independent management consultants.

The new Land Development and Management and Forestry Corporations are also manifestations of the approach. “It is my view that the moves we are taking with the land development and forestry corporations could turn Government expenditure around by as much as S3OOM or S4OOM in the next four or five years,” Mr Douglas said. Mr Douglas is keeping his early forecasts of the 1986-87 deficit to himself. The Reserve Bank’s most recent forecast, issued last year, put the deficit up to $2.4M, or 4.7 per cent of gross domestic product. That did take account of the forecast $1 billion net cost of next October’s tax reforms, but still must be seen as tentative.

In disclosing the revised 1985-86 deficit forecast of $1.7 billion, which is a substantial escalation from the Budget-night forecast but still down at 3.8 per cent of G.D.P., Mr Douglas would say little about the coming year. He is keen to keep the deficit figure as a percentage of G.D.P. on a downward trend, and at the same time hold to a programmatic fiscal policy which does not go for an easy, favourable result from year to year. Clearly, much hinges on the present expenditure review, with its heavy bent on funding sources and efficiency.

“Roger Douglas isn’t looking for peanuts,” Mr Neilson said.