Plan for steering NZ through global turmoil
Hon Bill English
Minister of Finance
18 December 2008
Government committed to plan for steering NZ through global turmoil
Sharply deteriorating fiscal and economic forecasts in the Budget Policy Statement issued this morning have strengthened the government’s resolve to raise New Zealanders’ incomes by improving productivity and economic growth, Finance Minister Bill English said today.
“New Zealanders can be confident that the new government is ready and prepared to manage both the economic challenges we have inherited and those that lie ahead,” Mr English said.
“We understand that 2009 and beyond will be tough for many New Zealanders, who will be anxious and concerned about their families, their businesses and the economy more generally. The coming year in particular will be very challenging for everyone.
“The economic and fiscal update shows the economy will benefit from a large fiscal impulse over the next two years totalling around 5% of GDP, or around $9 billion. This includes the 1 April tax cuts that were legislated for last week, the 1 October tax cuts, and the 2008 Budget. This will go some way towards cushioning families and businesses from the worst effects of the downturn.
“We have already started a three-year programme of economic stewardship that will provide New Zealanders with some financial security through these difficult times.”
Mr English said that beyond the deteriorating forecasts, it was difficult to predict precisely how the unprecedented global market turmoil would play out in New Zealand.
He noted that the Treasury’s forecasts of sharply increasing public sector debt and higher fiscal deficits over the next five years were outside the range the government considered prudent.
“While New Zealand has one of the lowest levels of government gross debt and net debt in the OECD, the Treasury forecasts show that the government will have to take action to bring debt levels back under control. The government is committed to a range of effective policy responses to ensure the worst-case scenarios for debt and deficits will not happen.”
This would include putting the economy on a strong medium to long-term footing, limiting spending growth, getting better value out of existing spending, ensuring that tax bases were maintained, and ensuring that government assets were managed as effectively as possible.
Governments around the world had announced packages of tax cuts and spending programmes to support their economies and the New Zealand government’s immediate approach was consistent with that. Its fiscal policies were focused on sharing the burden of the economic downturn, rather than increasing taxes and cutting spending.
“Cuts to government expenditure in an attempt to balance the books, and which have a substantial impact on demand, would simply push the economy deeper into recession,”Mr English says.
“Our current focus is setting in place a plan to manage the New Zealand economy through the global economic turmoil. This will ensure that New Zealanders are as strongly placed as possible to take advantage of better economic times when they come along.”
The government’s immediate steps include:
Establishing the true nature of the fiscal risks that now exist
Where possible, dropping unfunded commitments made by the previous government
Establishing a Budget process for 2009 that sets out the government’s immediate priorities
Halting growth in the number of people employed in government administration and getting better value out of government spending
“We will put more money in New Zealanders’ pockets through further cuts to personal income tax over the next three years and changes to minimum KiwiSaver contribution rates,” Mr English says. “We will control government spending and extract better value from it for all New Zealanders, and we will remove barriers preventing New Zealand becoming more competitive and achieving higher productivity growth.
“We want to come out of this with an internationally competitive economy. We will do this in a way that is both fiscally responsible and provides New Zealanders with a solid platform to achieve higher and sustainable economic growth over the medium-term and beyond.”