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Budget deficits will force wider review of public sector, English says

Wednesday 27th October 2010

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Finance Minister Bill English plans to take a “hard look” at the size of the public sector because mounting cash deficits will weigh on the government’s ability to fund services in coming years.

English told Parliament’s Finance and Expenditure Committee that the December half-year economic update will probably show shrinking tax revenue after receipts came in some $750 million below expectations in July and August. That could see the residual cash deficit balloon to more than $13 billion.

“Over the next two or three years, there’ll be significant restructuring in the way government does business and we’ll take a pretty hard look at the functions (where) the government thinks it might have priorities,” English told MPs. “We’ve taken a very stimulatory approach, but we can’t continue at that rate, we can’t continue with $10 -$11 billion cash deficits.”

English appeared in front of the committee to discuss the government’s financial statements for the year through June, which showed a smaller-than-expected deficit as investment funds, including the New Zealand Superannuation Fund, ACC investment portfolio and Earthquake Commission fund, lifted returns.

English said the government’s tax take was down by $4 billion during the year, $1.1 billion of which was from “a weaker economy.”

He defended the government’s tax package, which cut the top personal tax rate to 33% and hiked the GST rate to 15% from Oct. 1, saying it would lay the groundwork for more robust growth over the long-term.

English said the government’s response to the recession had been “pretty moderate” with no changes to income support, though spending will have to be reviewed in future. He reiterated the National-led government won’t review any of the so-called ‘sacred cows’ such as universal superannuation, interest-free student loans or Working for Families, without a mandate.

When asked about the government’s net liability for the collapse of South Canterbury Finance, Treasury deputy chief executive Gabriel Makhlouf told the committee it was about $300 million to $400 million after fees.

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