New Zealand’s government is instructing departments and ministries to cut back spending on consultants and contractors as declining tax revenue strains its budget.
(Bloomberg) — New Zealand’s government is instructing departments and ministries to cut back spending on consultants and contractors as declining tax revenue strains its budget.
The government has identified almost NZ$4 billion ($2.4 billion) of potential savings over the period to June 2027, Finance Minister Grant Robertson said Monday in Wellington. He is also reducing future budget allowances, trimming back some programs and banking allocated funding that has not been fully spent, he said.
The ruling Labour Party is under pressure over its economic and budget management less than seven weeks from a general election. Trailing in opinion polls, it is bracing for the Treasury’s pre-election fiscal update on Sept. 12, which is tipped to show a slump in revenue and bigger deficits.
“We have seen further deterioration in the global economy, particularly in China,” said Robertson. “This will continue to have a direct impact on the New Zealand economy, and it is important that the government responds to meet our balanced and responsible fiscal goals.”
The measures will help ensure that net debt remains under 30% of GDP and that the budget returns to surplus in the forecast period, he said.
In his May budget, Robertson projected a return to surplus in the year through June 2026.
He said big policy reforms are coming to an end, which is taking pressure off the public service and allows scope to reduce reliance on consultants and contractors.
“We are directing public agencies to cut back on spending on consultants and contractors to pre-Covid levels,” Robertson said.
The government wants contractor and consultant spending to drop below 11% of public service workforce spending, which will save about NZ$165 million per year, representing an 18% reduction on current spend.
It will also require some agencies to trim 1-2% off their baselines. In addition, an immediate savings review has resulted in a number of underspends being identified and some money that had been set aside for programs no longer being required.
Certain agencies are excluded from the review to protect front-line services, Robertson said.
The budget spending allowance will be reduced by NZ$250 million in the 2025-26 year, and by NZ$500 million the following year.
“Overall, this savings and efficiency exercise will benefit taxpayers by almost NZ$4 billion over the forecast period,” Robertson said. “This money will all be treated as savings – it isn’t being made available for any 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.”
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