Govt doubles cuts in expenditure

Press, 26 July 1986, Page 1

Govt doubles cuts in expenditure

By

MARTIN FREETH

in Wellington

The Government plans to cut $1574 million from its expenditure this year by stepping up its drive to make the public sector leaner and more efficient.

The Minister of Finance, Mr Douglas, disclosed the figure last evening after his second review of expenditure ahead of next week’s Budget. The new expenditurecutting total almost doubles that set down in the Government Expenditure Reform Statement of May 19. The extra cuts, expressed as reductions in what the Government would otherwise be spending this year, have been made by applying the principle first outlined in the May statement. The most direct impact on the activity of Government departments is likely to come from a total reduction of $495 million in their funding. In May, it was proposed about $297 million be cut out of the Budget by reducing departmental funding. Mr Douglas said much of the $495 million would be made up for by departments raising their own income by charging the users of their services.

However, the reduction will also mean departments selling assets, deferring capital works,

and reducing particular activities. A further $2B million is now expected to come from introducing new charges or raising existing ones. That will be used to fund fully parts of some departments which in the past have relied on the taxpayer. Mr Douglas included other income totalling $345 million from a number of particular, new sources as contributions to the total expenditure reduction.

The biggest single type of cut will come from simply moving the funding of the Rural Bank and the Housing Corporation outside the Budget and requiring those bodies to raise their own capital on money markets. A total of $526 million will now be “saved” by the Government in this way. Mr Douglas indicated earlier this month that the Cabinet was making “even tougher” expenditure cuts to counteract new costs, largely on “think big” debts, that had emerged for the Government to face this year.

He said then the second expenditure review was needed to restrain the 1986-87 fiscal deficit, a

key element in his economic strategy, within $2.5 billion.

In May total expenditure cuts of $B4O million were outlined. The final results of Mr Douglas’s pruning will emerge only in the Budget when the estimates of actual expenditure are given. However, a total cut of $1574 million has some significance when compared with the amount of $19,436 million actually spent by the Government in the last financial year. Mr Douglas said last evening that Public Service pay settlements had totalled about $2OO million more than earlier expected, contributing to the cost pressures that had now emerged. He pointed also to a rise of $2OO million in "think big” debt costs. He said the main activities of the Social Welfare, Health, and Education departments had again been left out of the expendi-ture-cutting.

Some small reductions in those areas would deal with "asset rationalisation and improvements in administrative practice.” Mr Douglas said the cuts were being made to

contain the deficit, but also to reform the public sector with commercial disciplines in its use of taxpayers’ money. Significant items in the expenditure-cutting detailed by Mr Douglas were:

• A $166 million reduction in the funding of the Ministry of Energy, achieved by reducing its capital works programme and the size of its head office.

© A $55.5 million cut in the Defence vote, achieved by deferring some capital works, and selling surplus assets. © A $lOO million cut in Post Office funding from the Government, requiring “major efficiency gain.”

• A $l7 million cut in the Foreign Affairs vote, achieved by the Ministry charging for its services to other departments and tightening expenditure on overseas posts. ® A $l5 million reduction in the Education vote, achieved through selling assets and more efficient administration.

• A $lO million reduction in Health, also by more efficient administration.

© A $1.5 million reduction in the Police vote requiring a rationalisation of property holdings. This department will also raise its fees, to provide $l.l million revenue towards its costs.

® Among other departments raising revenue by higher or new charges are Justice ($17.6 million), Labour ($3.4 million) and the Treasury ($2.7 million). © The Government expects to save $6l million on the Housing Corporation through its charging higher rents and interest rates.

© A limit on the “social services” payment by the Government to Railways will reduce its funding $15.5 million.

Mr Douglas said the Government would also reduce its funding needs this year to airports $lOO million, and other trading activities (undisclosed yet) by $2lO million, by selling assets.

He included tax and dividend payments to be made to the Government by the Reserve Bank ($3O million) and the Broadcasting Corporation ($4.5 million), in the expenditure reductions.