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Budget frees up $5.2b for higher priorities

Hon Bill English
Minister of Finance
19 May 2011

Budget frees up $5.2b for higher priorities

Budget 2011 has freed up $5.2 billion out to 2014/15 – including $700 million in 2011/12 - to invest in improving frontline public services and reducing debt, Finance Minister Bill English says.

“At a time when the Government's finances are constrained as it deals with ongoing costs from the global financial crisis and two Canterbury earthquakes, these savings provide significant funding for better frontline services in areas like health, education, and law and order,” Mr English says.

“About $4 billion of these savings will be redirected into higher priority spending – with about $3 billion going into health and education alone.

“The balance of the savings - $1.2 billion out to 2014/15 – will go into reducing growth in Government debt, which is forecast to rise in the short term as the Government meets its share of the costs of the Canterbury earthquakes.”

Total core Crown expenses are still forecast to increase by over $200 million to $73 billion in 2011/12, due to a number of costs that fall outside the Budget operating allowance, including adjustments to welfare benefits, New Zealand Superannuation and interest costs on Government debt.

“This Government is strengthening frontline public services, but we are committed to spending taxpayers' money wisely, keeping debt under control and playing our part in lifting New Zealand's rate of national savings.

“Trimming lower priority spending, or spending that is no longer affordable in today's circumstances, plays a key role in meeting these goals and helping rebalance our economy towards more savings, investment and exports.”

The savings come from a broad range of areas, including back office savings in the public service and changes to large and expensive schemes like KiwiSaver, Working for Families and Student Loans to ensure they remain affordable.

In addition to the $5.2 billion of savings, another $1.5 billion has been reprioritised within portfolio areas including health, education and social development to higher value initiatives in those portfolios.

“Public service chief executives have had two years to prepare their agencies to provide high-quality public services with little or no new money and they are now well positioned to deliver those savings,” Mr English says.

“KiwiSaver, Student Loans and Working for Families, which are together expected to cost $4.3 billion this year, have substantial future cost increases built into their structure. The Government is making changes to those schemes to restrain these cost increases and ensure they are sustainable into the future.

“In the case of ACC, improving rehabilitation rates and cost control in the Non-Earners Account, combined with better than forecast investment returns, mean the scheme's cost to the Crown is lower than previously expected.

“At a time when many governments overseas are undertaking radical measures to get their books in order, finding these savings while maintaining high-quality frontline public services and income support to the most vulnerable is an achievement.

“The Government will ensure future Budgets continue to focus on improving frontline public services and getting better value for money out of the over $70 billion of public spending every year,” Mr English says.

Savings – at a glance

KiwiSaver

Savings of $2.6 billion over four years, which will be put into improving frontline public services in areas like health, education and justice and reducing Government debt. Changes include:

Halving the rate of the Member Tax Credit, with a new cap of $520 a year.

Applying Employer Superannuation Contribution Tax to employer KiwiSaver contributions.

Working for Families

Savings of $448 million over four years from better targetting Working for Families, which will be put into improving frontline public services and reducing Government debt.

Public Service

Savings of $650 million over three years from 1 July 2012 by requiring over 100 state sector agencies to fund their own employer contributions to KiwiSaver, the State Sector Retirement Savings Scheme and the Teachers Retirement Savings Scheme.

Savings of $330 million over three years from 31 core public service ministries and departments, from 1 July 2012, which will be put into improving frontline public services and reducing Government debt.

Tertiary Education

Savings from student loans, including $276.6 million of operating funding and $170 million of capital funding over five years. Most of these savings will go towards improving frontline public services in other areas and reducing Government debt. Some of these savings have been reprioritised to spending initiatives within the tertiary sector.

Overseas Development Assistance

Savings of $100 million from spreading planned increases in funding over four years instead of over two years. These savings will go towards improving frontline public services in other areas and reducing Government debt.

Foreign Affairs and Trade

Savings of $30 million in the next two years as a result of an organisation-wide efficiency review, which will go towards improving frontline public services in other areas and reducing Government debt.

ACC

Savings of $638 million over four years from ACC's Non-Earners' Account due to better than expected rehabilitation rates, better cost control and improving investment returns, which will be put into improving frontline public services and reducing Government debt.

Social Development

Savings of $67 million over five years that will be used to improve frontline services in other areas and reduce Government debt. In addition, $245 million of existing funding will be redirected into higher-priority initiatives in Social Development. Changes include:

Savings of $67 million and reprioritisation of $56 million of unallocated funding from last year’s Ring-Fenced Fund for Family Support Services.

Reprioritisation of under spends from a number of areas - $45 million.

Reprioritisation of savings from preferred supplier agreements for medical alarms - $30 million.

Reprioritisation of funding for some alternative medical treatments - $15 million.

Reprioritisation of some Employment Assistance funding into Skills for Growth (1,000 places a year, over four years) and Job Ops for Training (a one-year youth package, covering 3,000 places) - $30 million.

Reprioritisation of funding for some pharmaceuticals not funded by Pharmac - $12 million.

Education

Reprioritisation of $356 million of unused contingency funding from Budget 2010, due to timing changes and some lower costs than forecast. This is not included in the $5.2 billion of savings as it has been reprioritised straight back into new education initiatives on top of the $14 billion of new operating and capital funding for education in Budget 2011.

Health

Reprioritisation of $505.1 million out to 2014/15. This is not included in the $5.2 billion of savings as it has been reprioritised straight back into new health initiatives on top of the $1.7 billion of extra operating and capital funding for health in Budget 2011. Changes include:

Workforce training and administration efficiencies from the centralisation of training budgets into Workforce New Zealand - $39 million over four years.

Ministry of Health departmental efficiencies through reduced staff numbers and back office efficiencies - $20 million over four years.

Vaccine price savings and lower required immunisation volumes - $19.4 million over four years.

Changes to the timing and approvals of environmental water projects - $18.6 million in 2011/12.

Returning under spends from 2010/11 - $118.1 million.

Contingency funding that is no longer required - $30 million over the next four years.

Changes to the national contracting of services - $72 million over five years.

ENDS


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