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What will Key cut?

Written By: - Date published: 10:37 am, February 1st, 2011 - 26 comments
Categories: education, public services - Tags: ,

The early childhood education cuts have hit – families will face an average $20-$45 a week increase in the cost of sending a kid to kindy. And Anne Tolley is signaling more to come. But it’s not just the education of the next generation that’s for the chop as National seeks to balance the books after its tax cuts for the rich binge.

This year, the government will spend $70 billion. With inflation expected to be 5% this fiscal year and population growth of 0.9%, just to stay even in real per capita terms government spending needs to go up by about $4 billion. That’s just reality. Instead, the government will only increase it by $700-$800 million, a 1% nominal increase but a 5% cut after inflation and population growth.

Where will it come from?

Key (aping David Cameron) says Health will get the basic increase it needs. A 6% increase on its $14 billion  budget is enough to eat all the extra budget allocation and a bit more once you count the extra needs of the aging population.

The increase in the cost of social welfare, including superannuation, is unavoidable. Benefits and super are automatically adjusted for inflation and people will keep on hitting 65. Even if unemployment numbers finally start to fall a little, it’s a drop n the ocean compared to the $9 billion a year bill for super. Key has pledged not to alter the pension and I seriously hope he’s not stupid enough to prolong the recession with benefit cuts like National did in 1991. So, that’s another $22 billion, rising by $750 million next year, locked in.

We can also rule out cutting finance costs – the money we pay in interest to our debtors, which is projected to rise by $600 million to $3.6 billion next year. And the Crown’s legal obligation to the Government Superannuation Fund – $300 million rising to $360 million.

$40 billion gone, $30 billion to go and we need to cut $1.4 billion just  to cover increases in the welfare, borrowing, and health bill.

I’m going to rule out nominal cuts for Police, Transport, and Defence – leaving them just the 6% cut due to inflation and population growth.

$22 billion left, $1.4 billion in cuts plus no inflation and population adjustments.

The only thing of any significance left is education with its $12 billion budget. Either it takes a big 10% cut or the assorted other small budget departments (Conservation, Housing, MFAT/aid, Customs/Biosecurity, MED, IRD, Morst etc) and Kiwisaver inducements will have to take savage cuts on the order of 20% in real terms.

I think we’re going to see cuts to early childhood and tertiary education, possibly the re-introduction of interest on student loans. Kiwisaver tax credits will be canned and there will be widespread cuts of 10-20% for departments, which means a less capable government (pray for no more major disasters) and more costs being lumped on to households.

All of this is completely unnecessary, just like asset sales. National did not have to borrow billions for tax cuts for the rich. And public debt is not at crisis point – we’re projected to be back in surplus in four years. No, this is all about ideology.

National has manufactured a ‘crisis’ to justify an agenda of tax cuts, public service cuts, and privatisation, which will undermine our future by weakening education and research, reducing private savings, and increasing foreign ownership of our strategic assets.


26 comments on “What will Key cut?”

  1. Bunji 1

    And indeed they’re already floating further cuts to ECE…

    National Ltd: Selling New Zealand’s Future.

  2. Anthony C 2

    Well he can’t cut research funding because that paid for the first tax cuts…

    Maybe tertiary education with the last sprinkle of Kiwisaver on top.

    Kiwisaver will be a pity too, speaking for myself my Kiwisaver has clawed back the loss from the GEC and is now growing, seems like a bad time to slice it even more.

  3. One could just as easily ask where the $1.8b in additional spending that Phil Goff has promised just in the last week will come from

    • Blighty 3.1

      from closing tax loopholes, new top tax rate, scrapping the new missile system, ring-fencing property losses (and hopefully canning motorway projects)

      • Uncle Helen 3.1.1

        Scrapping welfare handouts, introducing a flat income tax that’s the same for everyone, removing the right to vote for anyone who doesn’t pay tax or obey the law, dismantling the entirely useless 90% of the civil service that’s engaged solely in wealth redistribution.

    • Anthony C 3.2

      Yes one could if you were looking to misdirect. But last I checked National have the treasury benches for Budget 2011.

  4. It is called a strategic deficit Martyg, a strategic deficit …

    • Shane Gallagher 4.1

      All a ploy to create a crisis and then sell the country’s last assets to their rich mates here and overseas.

      The national standards in education are all about privatizing education… and then on to health (expect a crisis in the funding the health service soon).

      We have just seen the biggest transfer of wealth from the poor to the rich since the 1920s in the current financial crisis and NACT are just sweeping up the last scraps here in NZ for their rich buddies.

      Anti-spam: tricks – so appropriate!

  5. In some areas 40 % of 3 year olds are not in early child education according to Tolley. Nothing is being done to encourage this group. Were I the minister I would put my resources into getting all 3 year olds into ECE, instead the focus is on National Standards. Someone needs to explain to parents/caregivers the benefit of even 10 hours a week for a 3 year old attending ECE.

    Tolley if there are no kindergatens and child care centres in an area why not?

    Tolley has put the cart before the horse regarding the education of 3 year olds in particular.

  6. Lanthanide 6

    It seems quite unlikely they would introduce interest on student loans in 2011. They’ll save that up for 2012 after they’re re-elected.

    People voted for National for their promise of $50/week tax cuts and that they weren’t going to touch interest-free loans. Lots of idealistic young idiots bought it, and I think they’d very quickly go back to the left if National tried to do that.

    Having said that, though, National did bring in the 10% bonus for early repayments in 2009. I said at the time “here’s the carrot, where’s the stick?”. The stick is obviously interest back on student loans – maybe they’ll just stick it in at a low rate like 3% + retain the 10% bonus, so that way people can’t complain about how generous they’re being.

  7. Deadly_NZ 7

    And the Savings working group report is out too here’s a link I put it up on Google docs for any who want it.


    And as usual there’s granny Herald still spouting FUD for the NACTS that we are in danger of falling like Greece. What a load of Horseshit they are lumping all the private debt in just like every other article the write or is it more like Propaganda that they Spew ?


  8. randal 8

    the one thing he is not going to cut is the amount his friends are going to make when they stag the share floats of privatised (read: looted) state assets

  9. Graham 9

    If a tiny percentage of the population were stopped from leeching most of the countries resources and cash, then the budget problem would be solved.

    A lot of these proposed cuts are going to create more unemployment now and in the future.

    • Colonial Viper 9.1

      Graham, don’t fuss, if unemployment is truly increased by these measures, employers will have more power to suppress the ages paid to labour.

      Surely this is a very good thing for business in NZ. Ahem, and Australia.

  10. tsmithfield 10

    I think Key is hooking into a change of mood in the electorate. Otherwise, why would he be talking tough about cuts in the budget etc in election year? Perhaps promising less this year will actually be more in terms of votes.

    It seems to me that people are waking up to the fact that we can’t go on borrowing money indefinitely. Sure, our government debt is currently quite low by international standards. However, at the rate at which we’re borrowing, it won’t take long to become a major problem. Also, overseas creditors look at the combined government and private debt as an indicator of the creditworthiness of the nation as a whole, so the government needs to do as much as possible to ensure its side of the equation is going the right way.

    Perhaps people are waking up to the reality that its better to make some hard decisions now rather than have harder ones imposed on us later.

    • Irascible 10.1

      So if the people are waking up to the issues around borrowing why hasn’t it dawned on Key & English? All I read & hear is the mantra if we sell off the state assets we can spend the money while continuing to borrow to pay off those, like Key & English, who received the big tax cut benefits under the successive NACToid budgets.
      Face it TS your great political lover is a financial failure – escpecially on the macro-economic level.

  11. sean14 11

    Looking at it another way, where will Phil get the money from?

    • Anthony C 11.1

      You know what ‘looking at it the other way’ actually means don’t you?

      For your future reference the “it” suggests looking at a topic from a different angle, not looking at different topic altogether.

    • Lanthanide 11.2

      Reversing unaffordable tax cuts that National irresponsibly gave to the top 10% of income earners.


      • sean14 11.2.1

        Won’t even come close to Phil’s inexhaustible appetite for spending.


        • Colonial Viper

          Apart from the small fact that the last LAB government had 9 consecutive budget surpluses.

          And under Bill and John’s fiscal incompetence, NZ is headed for 3 strikes out with a ballooning deficit.

          ‘Next’ Government needed is correct.

  12. Afewknowthetruth 12

    No action within the current paradigms will get us out of the very deep hole we are in, a hole that all previous governments -both National and Labour- were digging for years by borrowing and squandering. .

    The NZ economy is critically dependent on imported energy in the form of oil, and the price of Brent oil has just about reached $100, up 40% from what it was 6 months ago: since we import around 4/5 our oil, that will blow a huge additional hole in the government’s budget.

    The only thing that will cause the oil price to drop significantly is collaspe of the global econmy. Catch-22

  13. prism 13

    Aft..truth – Labour repaid debt. Can’t be accused of borrowing and squandering in such a cavalier fashion just so you can made a grand statement of disgust. They didn’t do some things that would have helped the country but let’s look at the facts. The oil price is going to impact badly and ‘blow a huge additional hole in the govt’s budget’, that’s a fact to be concerned about.

  14. Draco T Bastard 14

    The biggest problem with all the political parties is that they believe that the economy = money when the economy is the resources we have and how we use/renew them.

  15. Bored 15

    The things Key can be relied upon to cut are:
    * taxes for the rich.
    * access to basic social services to pay for the cuts.

    The rest he will flog off, if it aint nailed down it will be fire saled to his mates. In Russia they call this kleptocracy.

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