Yahoo Finance New Zealand Treasury Eyes More Spending Cuts, Revenue Options
(Bloomberg) -- New Zealand’s Treasury Department is examining further measures to reduce government spending and increase revenue as the weak economy continues to erode tax receipts, Secretary Caralee McLiesh said.
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“Treasury’s going to continue to conduct reviews of spending and identify options, be they revenue options or spending options, for government to consider,” McLiesh said in an interview Wednesday in Wellington. She declined to be specific, but in terms of revenue said the budget in May raised some levies and service fees and “we’ll be looking to see if there are more of those.”
The government’s efforts to rein in spending, reduce debt and get its budget back into surplus are being complicated by recessionary conditions that have seen forecasts for tax revenue repeatedly revised down. Tax cuts due to take effect at the end of July will further reduce the tax take.
McLiesh said some recent data point to “underlying weakness in the economy” that “continues to pose risks for revenue.”
“We’ve seen it in current spending, we’ve seen it in house prices. We’ve seen it in the performance of manufacturing and services indices,” she said. “There is a lot of weakness and that poses some risks to our forecasts.”
In the May budget, Treasury forecast a return to surplus in 2028. It projected net debt will rise to 43.5% of gross domestic product next year and decline to 41.8% in 2028, still above the top of the government’s 20-40% target range.
“We do think that overall the levels of debt remain within the prudent level, but we will be working to support government to meet its target,” McLiesh said. “In order to do that, there will need to be some tough choices around the operating balance. The way to bring debt down is to increase revenue or reduce expenses.”
The government indicated in the budget that it wants to increase the levy tourists are charged when they enter the country, and has also flagged it may raise fees for migrant visas.
‘Very Challenging’
Spending cuts of 6.5% to 7.5% have already been imposed across government departments, resulting in thousands of redundancies. McLiesh said Treasury itself is shedding 50 roles, though largely through natural attrition and not filling vacancies, which will reduce its headcount to about 600 people.
Finance Minister Nicola Willis has set herself operating allowances — or new spending limits — for her next three budgets of just NZ$2.4 billion ($1.5 billion) a year. Treasury believes they will be “very challenging to meet” amid pressures for expanded government services, McLiesh said.
“It’s going to require a lot more reprioritization, either more spending reductions or higher revenue, and the Minister of Finance has said that that is what government is committed to doing,” she said.
McLiesh reiterated her February warning about growing fiscal pressures from things like pension and healthcare costs for an aging population, as well as climate change and rising geopolitical tensions.
“What has become increasingly clear is that these are not distant pressures, they are affecting the government’s finances now,” she said. “The rising cost of superannuation, the rising cost of healthcare, they are some of the really big pressures that are the reason for growing expenses in this government’s most recent budget. So they do need to be tackled now.”
New Zealand’s universal state pension system means that “an increasing share of government transfers is going to wealthier people” as the population ages, McLiesh said. The nation could reflect on that, and consider options such as increasing the retirement age or means testing the pension, she said, but they are “big choices for governments to make.”
Foreign Direct Investment
Other areas of work at the Treasury at the behest of the new center-right government include looking at how to remove barriers to foreign direct investment into New Zealand, such as a comprehensive review of the Overseas Investment Act, McLiesh said. This has the potential to improve the country’s poor productivity growth, she said.
“The OECD has rated New Zealand as having one of the most restrictive FDI regimes, so there is scope for significant reform.”
Two reforms that the Treasury sees some merit it but that aren’t on the current government’s agenda are a capital gains tax and asset sales.
“We’ve been on the record for quite some time that there are benefits to introducing capital gains tax in New Zealand, it is a gap in our system relative to other countries,” McLiesh said. “But we’ll be providing advice on the things that government is going to be considering, and they haven’t given us an indication that capital gains tax is one of those.”
Similarly, while “asset recycling” is one way to drive government balance sheet performance, “that’s not an area of active advice for us,” she said.
McLiesh, an Australian, declined to comment on whether she is seeking a second five-year term as Treasury Secretary, with her first due to end in September.
“My whole family loves Wellington. It’s a a privilege to live here,” she said. “Regarding my contract, that’s something that I’ll be communicating to others about in the near future.”
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