Prime Minister Chris Hipkins and Finance Minister Grant Robertson have announced a sweeping package of public service savings, cutting the Government’s cloth as clouds gather over the New Zealand economy.

The pair announced almost $4b worth of savings, booked over the four year forecast period. That is on top of $4b worth of savings announced at the Budget.

Specific programmes, like the Covid-19 emergency response, have been cut or have had “underspends” returned to the Crown because they are no longer necessary, but the largest cuts come from a sweeping reduction to agencies’ baseline expenditure.

Half a billion dollars has been saved from the 2025/26 Budget and subsequent Budgets, by trimming agencies’ baselines by between 1 and 2 per cent. The largest cuts came at MBIE, which had its baseline cut by $110.8m, followed by the Ministry of Education, which had its baseline cut by $69.7m.

The Government said these cuts do not affect frontline services.

Unlike previous government savings exercises, Robertson said the money freed up here would not be spent on other things, but it would be booked as a permanent saving.

“The Government’s published accounts for the eleven months to the end of May showed that tax revenue was more than $2 billion behind where Treasury had forecast it to be at the Budget. It should be noted that government spending was in line with forecasts during this period.” Robertson said.

“Since May we have seen further deterioration in the global economy, particularly in China. 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,” he said.

Robertson has cleverly laid two landmines for the National Party in the package. The first, is by trimming the Government’s consultant spend, which National has promised to cut and direct towards its childcare policy.

“We are directing public agencies to cut back on spending on consultants and contractors to pre-COVID levels,” Robertson said.

The Government is reducing consultant spending to below 11 per cent of Public Service workforce spending, saving about $165m a year - an 18 per cent reduction on the current level of spending.

This will likely put pressure on National’s ability to direct that money into its childcare policy.

The second landmine is the Government has trimmed its operating allowance for the 2025 Budget by $250m and the 2026 Budget by $500m.

An operating allowance is the amount of new money the finance minister can allocate during a Budget. By trimming these allowances, Robertson is making it more difficult for other parties to fund their election commitments.

Other parties could decide to increase the allowances anyway, but this would mean pushing back the path to surplus and taking on more debt. Robertson has had far larger allowances than Labour promised at the 2020 election, leading to a large increase in borrowing.

Robertson said he was able to trim the allowances “as inflation falls and still be able to meet the cost pressures we face as inflation declines and solid economic growth is forecast”.

Robertson hinted the changes would be enough to keep New Zealand on track to hit surplus in the forecast period.

“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,” Robertson.

“We have been clear that this cannot be a big-spending election. Uncosted, untargeted tax cuts like those promised by the opposition are simply not affordable. Likewise broad sweeping statements about slashing public services is also destabilising and disingenuous,” he said.