New targets to bring government spending down

By Pattrick Smellie

Dec. 15 (BusinessWire) - The Government is considering spending caps above which it would not spend in order to deal with intense spending pressure, Finance Minister Bill English said today at the publication of the 2010 Budget Policy Statement.

The spending caps proposal, a strong focus on "better state asset management", and further signs of a big shake-up in the innovation eco-system are the main elements in the BPS, which is short on clues in strategic areas outside public sector efficiency and fiscal rectitude.

"Some countries have had success with a spending cap - a limit which the Government is required to keep spending below," the BPS says. "Others have had success with multi-year expenditure rules and targets.

"The Government will consider what tools may be required to help strike that balance," although English ruled out legislating a spending cap that would be inflexible to sudden economic shocks.

The fiscal outlook remains dominated by a trebling in public debt to $64.9 billion by 2014 before stabilising. While this is an improvement on the forecasts released with the Budget, this still creates pressure as interest costs will rise from $2.4 billion a year to $4.6 billion a year at its height. A breakeven surplus of $1 million is forecast for 2016, five years after Australia is forecast to have returned to surplus.

On asset management, the BPS also signals much greater focus in future fiscal strategy work on net Crown worth as a key fiscal indicator, because it provides a long term view about "higher or lower burdens on future taxpayers".

Banking sector liabilities suffered by the Government because of global economic crisis and collapse of finance companies showed how important such risks could be.

"A complete picture of Crown solvency is critical to the Government's ability to manage these" the BPS says.

In signals on innovation and export policies, the BPS says the Government is having "a close look at how New Zealand's offshore network operates and rethinking how we organise and support research and development".

"In particular, we need to build stronger links between the public science and business, encourage greater levels of private sector research and development, and seek wauys to derive greater national good from our investment in Crown Research Institutes.

"In some cases, action to lift constraints on the growth of specific sectors may be required."

English declined to be drawn on suggestions that the focus on better management of the state's $70 billion of physical assets and $35 billion of financial assets could lead to asset sales in a second term of a National-led government.

"We haven't been looking at sale," said English, referring to National's election promise not to privatise in its first term. "We made a commitment not to do any asset sales (this term) and we will have to update that commitment.

He singled out government businesses Kordia, TVNZ, New Zealand Post and Kiwirail as "struggling with technology and the pace of change".

(BusinessWire)