Finance Minister Grant Robertson says next week's Budget will contain $4 billion of savings and reprioritisations over the next four years.
Watch the speech here:
Speaking to a business audience at Parliament on Thursday morning, Grant Robertson said ministers were told if they wanted to progress particular opportunities, they had to look for savings opportunities within their ministries' existing budgets.
"For the Budget I will announce next week, agencies were told that we would be looking at a wide range of factors in determining their level of budget funding, including how many vacancies they were carrying, historical rates of underspends and the growth of FTEs [fulltime equivalents] over time," he said.
Robertson said the $4 billion would mostly go towards funding agencies' existing cost pressures.
The government would detail what made up this number when the Budget was released, but savings had been found across a wide range of areas, some of which had been well publicised already, he said.
Programmes such as the public media merger were stopped, the clean car upgrade and social leasing schemes curtailed, and funding associated with the affordable water reforms and Covid programmes that were no longer needed were returned.
Other savings included reassessing forecast requirements of government departments and returning as savings underspends from existing initiatives, and job reprioritisation, as he explained to reporters afterwards.
"What we've done is go to departments and say 'you seem to have a lot of vacancies, do you need the funding for all of those vacancies or can we move those over to either a new initiative or an emerging priority'.
"Certainly in areas where extra spending came in for Covid, those jobs per se aren't there anymore."
He also said closing contingencies - funding the government had allocated in case costs blew out - had been more effective than he expected.
"Actually, taking a harder line on that and saying 'well, if you haven't spent it in this year or these two years' - I think we probably got a bit more out of that than I thought we might."
Prime Minister Chris Hipkins has already indicated that costs the government will incur in the Cyclone Gabrielle recovery will be met within existing Budget funding, and taking on some debt.
Robertson said the government was well-placed in that area, as public debt was significantly lower than many other countries, and in the bottom third of the OECD.
"Our debt sits at around 19 percent of GDP, well below the 30 percent ceiling that we indicated when we set the fiscal rules last year," he said.
The cash deficit (OBEGAL) has blown out significantly since the last forecast in December (due in part to lower tax take and Cyclone Gabrielle), but net debt and core Crown expenses were lower than expected.
However, there has been a major increase in migration, that would likely help stimulate economic growth. Numbers to the end of February showed there was a net migration of 52,000.
Cyclone recovery a Budget priority
Robertson said the government had put responding to the cyclone ahead of some other priorities ministers would like to have progressed.
Spending was now tracking back toward the low-30 percent of GDP range, but Robertson said he was reluctant to speed that up.
"Going faster than we are in that track would require significant cuts to core services to austerity levels and would have long-term consequences for people and communities. I am not prepared to do that," he said.
The government has already dampened down expectations for this year's Budget.
Two weeks ago, in a pre-Budget speech of his own, Prime Minister Chris Hipkins said 18 May would bring a "no frills" Budget, focused on supporting New Zealanders through the cost of living and recovering from Cyclone Gabrielle.
"It's not right for households to be tightening their belts if the government isn't also seen to be doing the same," Hipkins said at the time.
Hipkins ruled out introducing any new taxes - such as a cyclone levy or capital gains tax - in the Budget.
Robertson continued to highlight that approach today.
"I continue to believe that right now tax cuts are not the appropriate economic strategy when we're facing the recovery from a cyclone and significantly higher inflation than we had wanted," he said.
"Making sure we deliver to New Zealanders the core services that they need - the health, education, housing, the infrastructure, that is something that I think we need to put first. It's also something that's going to cost more and while inflation, yes, absolutely does increase the revenue that the government gets, the point I made in the speech today is it increases the costs that we have as well."
He also took a potshot at National - rare for one of his pre-Budget speeches. He explained afterwards that "look, it is election year and you're right most of my speeches to the Chamber tend to be apolitical but it is election year and I do feel very strongly ... about this point.
"People have to be able to explain how they will pay for what they're doing. Now, you can't reuse $4 million of consultancy spending that doesn't actually exist more than two or three times. The National Party has to answer how they get out of Paul Goldsmith's fiscal bermuda triangle and to me they haven't done that yet."
The recovery will instead be funded by existing Budget funding, some reprioritisations, and some debt.
Hipkins said tax brackets would need to be adjusted in time, though the prime minister said the current high inflation environment was not the right time.
Tax revenue was forecast to drop from 30.2 to 29.9 percent of GDP, while net debt was forecast to rise from 17.2 to 19.9 percent of GDP.