23 Mar 2011

Black Budget prediction as spending cuts loom

6:22 pm on 23 March 2011

The state of the Government's books, and which party is best qualified to manage them, is shaping up as a key election-year battle.

The National-led government has signalled public spending will be reined in even further as it tries to get on top of its debt, leading to warnings from the opposition of a Black Budget in May.

Prime Minister John Key has asked ministers to find $800 million worth of savings for this year's Budget in the wake of the devastating Christchurch earthquake on 22 February.

The Government has signalled tighter eligibility criteria for Working For Families, student loans and possible changes to KiwiSaver. Some smaller programmes may be cut altogether.

Finance Minister Bill English says the Government must re-balance the economy and fiscal restraint will have to continue even after a return to surplus, as the Government looks to reduce its debt.

The Opposition warns that cutting government spending could put the economic recovery at risk.

The Labour Party says spending cuts will suck demand out of the economy, lower tax revenue and prolong any future recession. The Green Party is predicting a Black Budget, with savage cuts and more borrowing.

During Question Time in Parliament on Wednesday, Labour's finance spokesperson David Cunliffe raised concerns that planned spending cuts will be bad for the economy.

Mr Cunliffe asked Finance Minister Bill English whether any regard had been given to the negative impact spending cuts would have on jobs, incomes and future tax revenue.

Mr English replied that if running a large deficit was good, then the economy should be growing at six or seven percent - but it is not.

In response to a question from the Green co-leader Russel Norman, Mr English agreed that for many areas, no increase in spending would mean a cut in real terms.

Meanwhile, the Prime Minister has ruled out cuts to the police budget as part of the savings ministers have been asked to find, though he says there will not be any substantial increase.