The Government is clamping down on contractor and consultant spending, trimming some programmes, and pulling back on the amount of money planned to be spent on future Budgets.
Finance Minister Grant Robertson said on Monday the exercise will result in nearly $4 billion in savings over the forecast period. But this money won't be made available for new spending.
It comes after the Government's most recent accounts for the eleven months to the end of May showed tax revenue falling more than $2 billion behind where Treasury had forecast.
Robertson also warned that there has been a deterioration in the global economy since May, particularly in China, and this will have a "direct impact on the New Zealand economy".
"It is important that the Government responds to meet our balanced and responsible fiscal goals," he said.
Robertson said the Government set up the Fiscal Sustainability and Effectiveness Programme at the May Budget to "support our return to a more sustainable fiscal position as we remove the necessary spending that supported New Zealand through the COVID pandemic".
"It is clear given the economic conditions that we need this work to happen more than ever. Today we are announcing further actions as part of that programme."
About $1.5 billion of the savings comes from the Government identifying money no longer needed for some initiatives.
For example, $115 million comes from research and development (R&D) underspends as well as by discontinuing funding for some small R&D programmes.
There's also $150 million that was set aside to provide loans to Air New Zealand during the COVID-19 response, but which is no longer required.
Another $94 million comes from unspent funding from the Government's Housing Acceleration Fund.
About $58 million that remained in the COVID-19 contingency fund is no longer needed now that the emergency response is over.
On top of these programme savings, the Government is clamping down on how much it spends on consultants and contractors.
"The big policy changes that the Government had been working on - like RMA, water infrastructure and the health reforms are coming to an end," Robertson said.
"Along with the COVID response ending, this will take pressure off the public service, so there is room now to reduce reliance on consultants and contractors as the Government returns to focussing on delivering core public services.
"We are directing public agencies to cut back on spending on consultants and contractors to pre-COVID levels."
Robertson said operating expenditure as a proportion of workforce spend (the Public Service Commission's main contractor and consultant measure) was trending downwards prior to COVID-19.
In 2017/18, when Labour gained power, it was 13.4 percent and fell to 10.4 percent in 2020/21. In 2021/22, amid COVID-19, it was at 14.6 percent and Robertson on Monday said the Government wanted to return this to below 11 percent, saving about $165 million per year.
"Public sector agencies are being required to trim 1 or 2 percent off their existing baselines. They have been directed to do this while protecting front-line services," he said.
"To ensure this, I have excluded several agencies from the exercise entirely. These permanent savings will apply to about 19 percent of the government's expenditure."
The Government is not making cuts to the likes of frontline health services, frontline education, police, superannuation or benefits.
The baseline savings it is making are expected to come in at about $1.4 billion over the four-year forecast period.
Robertson said he has also decided to trim back some Budget allowances in the 2025/26 (by $250 million) and 2026/27 (by $500 million) years.
"We can do this as inflation falls and still be able to meet the cost pressures we face as inflation declines and solid economic growth is forecast," he said.
"All these measures taken together will help ensure we meet our fiscal goals to keep debt under 30 percent of GDP and get the books back into surplus in the forecast period."
The Finance Minister said these roughly $4 billion in overall savings won't be made available for other new spending.
"The economy is turning a corner, but inflation remains sticky. It is trending down but is doing so slower than we would like so we are doing our bit to help nudge it downwards faster."
He said this cannot be a "big-spending election" with "uncosted, untargeted tax cuts like those promised by the Opposition".
"Likewise broad sweeping statements about slashing public services is also destabilising and disingenuous," Robertson said.
"We need a balanced approach that protects the public services that New Zealanders rely upon, while making sure we cut our cloth and have a sustainable financial base to take forward."
