Delivering on commitments, investing for future
Hon Dr Michael Cullen
Minister of Finance
Delivering on commitments, investing for the future
Budget 2006 underlines the Labour-led government's wise economic management, which provides the flexibility to continue to make important social and infrastructural investments to improve the quality of life of all New Zealanders, Finance Minister Michael Cullen said today.
"My seventh budget delivers on Labour's election promises and guarantees solutions to key regional transport issues. Our prudent fiscal approach allows us to maintain spending as the economy slows without jeopardising our debt targets.
"Budget 2006 funds promises to extend Working for Families, interest free student loans and spending on health and education. Since 1999 we have consistently delivered on our commitments and Budget 2006 maintains our proud record."
The budget allocates new operating spending of $9.6 billion and capital of $2.7 billion over the next four years.
Budget 2006 delivers on Labour's drive to improve vital transport infrastructure by guaranteeing funding for New Zealand's largest ever road building programme.
"We are spending $1.3 billion over the next five years to guarantee the State Highway programme and accelerate critical roading projects, such as Auckland's Western Ring Route, Waikato's Expressway and Wellington's Western Corridor. A number of important regional projects will also be fast-tracked.
"We are committed to ensuring the funding is available so road users and the construction industry will have more certainty about the road building programme.
"These commitments are possible because of our astute fiscal management over the past six years."
In 1999 the level of gross sovereign issued debt was 35 per cent of GDP. This is forecast to fall to under 20% of GDP by June 2010. Debt is moving towards prudent levels and the government is shifting its focus to ensure it stays at these levels over the long term.
"In addition to reducing gross debt, we have spent and invested wisely, building up assets like the New Zealand Superannuation Fund.
"It is heartening to record the government now being in a positive net financial asset position, likely to be for the first time since the New Zealand government was formed in the 1850s. We are now one of just seven countries in the OECD in this enviable position.
"Our responsible fiscal management means we are well placed to weather an expected slowing in economic activity and to meet the expected challenges of an aging population and the unexpected challenges as well."
Most forecasters are expecting a soft landing this year with the economy picking up again in 2007. Real GDP growth is estimated to have eased to 2.1 per cent in the year to March 2006 and is forecast to bottom out at 1.0 per cent in the March 2007 year.
"However, the economy is expected to expand strongly again in the following years to around 3 per cent in the March 2008 year driven by healthy trading partner growth and the impact of the lower dollar on exporter returns."
The government will continue to run surpluses over the forecast period, but the cash position will deteriorate over coming years. Beyond 2005/06 the government is forecast to record cash deficits at an average of $1.8 billion a year for the next four years. This will entail some additional borrowing.
"Our wise fiscal management means we can maintain an operating allowance of $1.9 billion over each of the next three Budgets and a capital allowance of $858 million in Budget 2007, $570 million in Budget 2008 and $640 million in Budget 2009.
"Fluctuations in the economic cycle will affect the fiscal position, but having reduced debt to prudent levels we have the flexibility to manage our way through the economic cycle without requiring drastic or sharp changes to fiscal policy or settings. This is a luxury that governments in recent memory have not always had, and underlines the importance of Labour's careful management over the past six years.
"It also underlines the importance of our efforts to get more value for money from current expenditure. Associate Finance Minister Trevor Mallard is leading a process designed to improve public sector performance and ensure taxpayers' money is directed towards where it can be most effective. This is the first year of an on-going programme; it will be an ongoing priority of the government.
"Budget 2006 is a forward looking budget. It continues the theme of previous Labour-led governments by delivering on policy commitments, looks to the future by removing bottlenecks to growth, especially in transport, and provides a stable fiscal platform for weathering both the near term economic softness and the longer term fiscal pressures of an aging population."