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Government to save $700M in cuts and reallocation


Thursday 19th May 2011

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The Government has freed up $700 million in this year's budget through cuts to low-priority spending and changes to key programmes, with a shake-up of the public service to save even more in the years to come.

Finance Minister Bill English today said the budget would free up $5.2 billion over four years, including $700m in this year's budget, with the savings to be re-invested into frontline services.

The big savings areas include student loans, KiwiSaver and Working for Families, which were forecast well ahead of today's budget announcement.

The changes to KiwiSaver, which include halving the member tax credit and taxing compulsory employer contributions, will save $2.6b over four years. Tightening up the Working for Families scheme will save $448m, while changes to the student loan scheme will save $276.6m in operating funds and $170m in capital funding over five years.

A well-signalled shake-up of the public sector won't come into effect until after the November election, with the first savings to be made from July next year.

The budget calls for $650m in savings over three years by requiring more than 100 state sector agencies to fund their own employer contributions to KiwiSaver and other state sector retirement schemes. A further $330m will be cut from 31 core public sector ministries and departments over three years from July next year.

The Ministry of Foreign Affairs and Trade will take a hit sooner, with $30m to be trimmed over two years in an efficiency review. Changes to overseas development assistance funding will save $100m by spreading planned increases over four years rather than two.

Social development savings will total $67m, with another $245m to be reprioritised within the portfolio. Reallocations include $56m of funding that had been ring-fenced for family support services and $45m from under-spending in other areas.

The health sector will reprioritise $505.1m over the next four years, with savings to be made in work place training, immunisation programmes, back-office spending, and contingency funds that are no longer needed.

Education savings will be made by reprioritising $356m of unused contingency funding left over from last year's budget.

Among the savings signalled ahead of the budget was $638m over four years from the ACC non-earners' account, which covers injuries for people such as retirees and students, due to improved returns and better cost control.

English said the savings would provide significant funding for better frontline services in areas like health, education and law and order.

"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."

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