Steven Joyce: Former Finance Minister on the cutbacks to public spending, the drastic cut to the operating allowance

A former Finance Minister says cutbacks to public spending need to be seen in context. 

Finance Minister Nicola Willis has confirmed a drastic cut to the operating allowance in next month's Budget, from $2.4 billion to $1.3 billion. 

There will be no new funding for most Government departments, with the focus being on priority areas and paying off debt. 

Steven Joyce told Mike Hosking there's still scope to reduce spending. 

He says Government spending has doubled in the past eight years while inflation has only gone up about 30% in the same time.  

Joyce is also saying there's growing public appetite for more public sector restraint. 

The Government's ruling out giving most departments any additional funding in the next Budget, but Joyce says reaching that target will depend a lot on the international economy. 

However, he told Hosking there are still lots of changes that can be made to bring down government spending. 

Joyce says making those changes requires a bit of work and requires ministers having a good political radar and knowing what can't be cut. 

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Episode Transcript

Speaker 1 (00:00):
Still trying to work out whether what Nikola Willison announced
yesterday was braver and possible this is the budget, of
course coming later on next month, possibly both. I suppose
the operating allowance for the budget next month, which was
already tight at two point four billion, has been slashed
one point three paints a picture of a country in
a very tight fiscal spot politically is a hard seller. Well,
of course, Former Finance Minister Stephen Joyce, well, this.

Speaker 2 (00:20):
Is a very good morning morning, Mike. How are you
very well?

Speaker 1 (00:22):
Indeed the two point four to the one point three
double question, would you have done the same? And two
is it foolish or not?

Speaker 2 (00:29):
No, it's not foolish, and I probably would have done
something similar because there is huge capacity to still reduce
the upwards trend of government spending. And I'm assuming in
that move that found quite a bit of waste and
they'll be able to do something with it. And I
think in the context of that, you've got to remember

(00:51):
that the government spending is pretty much doubled since twenty
seventeen in nominal terms, and inflation's only gone up to
thirty percent of the same time, so there's got to
be capacity there because I think most people would say
that putting out public services haven't improved that much in
seven years. It's definitely costs more because of inflation, but

(01:13):
nothing like, nothing like the sort of numbers that the
PAS government ramped it up to. So I think there'll
be capacity there. The trick is to find it. As
John Key used to say, there's a constituency for every
bit of existing government spending. So no matter what you do,
you're going to have challenges because there'll be somebody missing out,

(01:35):
but a lot of it. You know, they should be
able to find some good opportunities there.

Speaker 1 (01:39):
When she says she's found billions, I guess most of
us thought they were found last time round. Do you
believe she's found billions? And we will go, oh, so
that's where it's been.

Speaker 2 (01:51):
I'm encouraged by that because actually the last time around,
you know, you didn't have a lot of time. Government
came in at the end of the year. You know,
budget proposed was in February. Frankly, the public service is
still getting aligned with the new government. This is the
first year, would be the year they throw out what
we used to call the Washington Monuments, which is yes,

(02:11):
you could cut minister, but you know it would be
the police the police boat in Wellington, which of course
would be completely politically unsustainable. So they throw up the
things first that you that you know that you can't cut.
And then after a year of work, as will have
happened in the meantime, the ministers have got a lot
more familiar with their portfolios, a lot more familiar with

(02:35):
the spending buckets, and they'll be able to make some choices.
I remember the example for me that came to mind
was the tertiary budget. When I was minister. We made
a large number of small changes to the student loan
scheme over a period of four or five years, and
we funded the increase in tertiary budgets across that time

(02:57):
out of that and gave some money back to the
Minister of Finance. And a few people were upset with
some of some of the changes that we made, but
none of them were reversed by the next government because
they were all sensible changes. So it just requires quite
a lot of work, and it requires ministers to have
good political radar and know what they can't shut in

(03:18):
what they can do.

Speaker 1 (03:19):
You believe the twenty nine surplus thing or not.

Speaker 2 (03:23):
Well. I think it's a good goal. Of course, it's
back from where it was, but it was found to be. Yeah,
I think you've got to have that as a target.
A lot of it will depend on the state of
the world economy over the next couple of years, but
you've got to set it. There are those already that
are saying, ah, it's the end of the world. We
should be spending more normal suspects. But that's not the
thing to be doing right now. You've got to get

(03:44):
our own books into shape. That's really really important.

Speaker 1 (03:47):
See, that's the interesting thing. So it's economics versus politics.
Is she spending political capital here? Or are there are
enough New Zealanders who go, yeah, it's hard, but life
is hard and it's about time we did this.

Speaker 2 (03:59):
I think the constituency for controlling government spending is if
anything increased in the last twelved months. I mean, obviously
there's things you can't touch and you shouldn't, like the
health sector and education, but in all the other areas,
I think there's a lot of things that people are
looking at actual I'll give you an example. The other day,
the Ministry of Education announced teachers registration costs have been

(04:21):
covered by the Crown as a pre budget announcement. I
don't think there was a massive constituency for that. More broadly,
I mean, it doesn't change much at the end of
the day, and I'm sure the teachers will be happy,
but it's not like there's a lot of constituency for
the government to announce a whole lot of extra spending
for one group or another, as there often would be

(04:44):
at the stage of the cycle. There's no great enthusiasm
for it, and that's because the public knows that our
finances are tight. The world is in a difficult place.
We've got to be careful.

Speaker 1 (04:56):
We do and do appreciate your time, as I Stephen Joyce,
former Finance Minister. For more from the Mic Asking Breakfast,
listen live to News Talk SETB from six am weekdays,
or follow the podcast on iHeartRadio.