Get ready for Budget axe, warns English

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Finance Minister Bill English is sharpening the axe for big spending cuts in next year's Budget.

Warning of more red ink in next month's half-yearly economic update, Mr English said yesterday that greater spending restraint would be needed just to keep debt levels on their current track. He said no sector or government department was immune. He also confirmed the Government had dropped the previous commitment to add $750 million each year to the health budget.

The comments prompted Labour to warn people to expect "the father of all budgets" next year, with "savage" cuts to ACC, education and health.

The Government will open the books on December 15 for the Half-Year Fiscal Update, the same day it sets out the broad outline of its spending plans for next year's Budget. Mr English said a feature of the Budget would be the "reprioritisation" of big spending increases under the Labour government.

Mr English said baseline budget spending had increased by 45 per cent since 2005 while the economy had grown by 15 per cent.

"This kind of rampant spending growth is unsustainable and cannot continue." While some "low-hanging fruit" had been pruned from this year's Budget – mostly programmes announced by Labour that had not yet begun – next year's spending restraint was "of a sort we haven't got to yet".

Asked if that meant existing social programmes would be cut, he said that had not yet been decided.

"But there's certainly going to changes. Low-priority ineffective spending is going to come under pretty tough scrutiny."

He would not identify specific areas targeted, but "examples" of spending increases in recent years issued by the Government yesterday listed education, health, corrections, police, and housing as areas where costs had blown out. Education and health each got more than $3 billion of new money in the past five years – though the biggest percentage rise was for racing under former minister Winston Peters, up 2000 per cent.

The only portfolios to have spending cut over the past five years were the Crown Research Institutes, employment, emergency management, and veterans' affairs, the data shows.

Mr English has previously taken aim at government departments. He said yesterday some did not appear to have got the message to cut costs.

"Everyone in the public sector should be looking at reprioritising their spending ... there's a lot of inertia, some of them are actively getting on top of it but others seem to think they can wait it out," he said.

Labour finance spokesman David Cunliffe said it was now clear"hard-working Kiwis" should be afraid of what lay ahead in Budget 2010.

"The ghost of Ruth Richardson's 1991 Budget, which left thousands of Kiwis unemployed or unsupported, is stalking the halls of the Beehive."

Mr Cunliffe said it was rich of Mr English to blame Labour for "rampant" spending when National had just added $110 billion to the bill the country faced for the Emissions Trading Scheme.

- © Fairfax NZ News