7 The Government's response
Reflecting on the above analysis, the Government decided not to introduce a formal cap on total spending in Budget 2010. Although a cap on total spending could have brought some benefits, there are also some risks, particularly associated with the complexity of the proposal. The Government considered that the current system, which includes a cap on new initiatives in a given year - via the Operating Allowance - achieves some of the objectives of a total spending cap. In particular, the Government's commitment to living within an annual Operating Allowance of $1.1 billion suggests that any future revenue surprises, should they occur, will not be used to increase spending.
The Government continues to look at ways to address the other issues identified, such as increasing the range of expenses subject to an effective limit and increasing the focus on the base rather than just the marginal spend. For example, for Budget 2010, the Minister of Finance initiated a reprioritisation process that resulted in $1.8 billion of savings within existing baselines being redirected to higher priority areas over the four-year forecast period. Budget 2010 also indicated that various aspects of the current Fiscal Management Approach will be reconsidered with a view to improving the Government's ability to scrutinise and manage spending increases that occur outside the Operating Allowance.
