Budget sets out New Zealand’s road to recovery
Hon Bill English
Minister of Finance
28 May 2009
Budget sets out New Zealand’s road to recovery
Budget 2009 will lift economic growth, help New Zealanders through the recession and strengthen the Government’s books, Finance Minister Bill English says.
It also directly supports jobs over the next four years through a $323.3 million home insulation and clean heating campaign a multi-billion dollar boost to infrastructure investment and $50 million for a new national cycleway network.
“This Budget takes significant steps towards meeting key election commitments like improving frontline services in health, lifting educational achievement and boosting law and order,” Mr English says.
“It fulfils the National Government’s commitment to significantly lift infrastructure investment, boost our long-term economic performance and permanently raise New Zealanders’ living standards.
“At the heart of this Budget are steps to future-proof the Government’s financial position as it takes a hit from the biggest and most co-ordinated global recession since the 1930s.
“We believe these measures, taken together, will put New Zealand firmly on the road to recovery,” Mr English says.
Budget 2009 ensures that forecasts of skyrocketing debt, due to the big spending policies of the previous government and the recession’s pressure on revenue and growth, will not eventuate.
Maintaining entitlements and improving public services
It is entirely appropriate that the Government plays its part in helping New Zealanders through the immediate challenges of the recession by maintaining entitlements and improving public services, Mr English says.
“Over the next four years, we will increase new spending by $5.8 billion to help maintain economic activity and to support jobs. However, over the medium-term, it is essential that we get on top of our debt.
“A growing mountain of debt would act as a handbrake on the economy and could lead to an adverse reaction from foreign investors and credit agencies. That would mean higher borrowing costs for businesses and households.
“Keeping debt down is also essential if we are to maintain public services and preserve entitlements such as New Zealand Superannuation, Working for Families and welfare benefits at their current levels.
“As a result, we have taken considered decisions now to avoid having to make harsher decisions later,” Mr English says.
Budget 2009 decisions
Those decisions include:
• Deferring the second and third tranches of planned tax cuts in 2010 and 2011 to avoid incurring further debt. The Government remains committed to lower personal income taxes and they will be assessed in future Budgets.
• Suspending automatic contributions to the New Zealand Super Fund until the operating balance excluding gains and losses (OBEGAL) returns to surplus. A payment of $250 million will be made in 2009/10 and any future partial contributions will be considered on an annual basis.
• Revising down the annual operating allowance to $1.45 billion for 2009/10, compared with $1.75 billion indicated in the Budget Policy Statement in December. It will be capped at $1.1 billion in 2010/11 and adjusted by 2 per cent in following years.
• Reprioritising $2 billion of the previous Government’s planned spending into higher quality initiatives that meet this Government’s priorities.
Lower taxes benefit the economy
“We cut taxes on April 1 this year because we believe lower income taxes benefit the economy,” Mr English says. “However the severity of the recession means tax cuts scheduled for 2010 and 2011 are currently unaffordable. Their timing will be reassessed as part of future budgets.
“We are also suspending full payments to the Superannuation Fund. This will not affect people’s entitlements to New Zealand Superannuation - it will continue to be paid at a minimum 66 percent of the average wage from age 65.
“In our view it doesn’t make sense to borrow large sums to invest in currently uncertain global financial markets while running large deficits. Next year we would have had to borrow $1.5 billion extra if we continued with full payments.
Budget 2009 ensures the Government’s finances are managed prudently and that New Zealand is in the strongest possible position to take advantage of the global recovery.
Treasury estimates showed that without policy changes, gross government debt would rise alarmingly, reaching 48 per cent of GDP by 2013 and 70 per cent of GDP – about $227 billion – by 2023.
“In Budget 2009, we have taken steps to reduce that forecast blow-out and ensure that gross debt as a percentage of GDP peaks at 43 per cent in 2016/17, before starting to fall as a percentage of GDP.”
Even with measures taken in Budget 2009, the OBEGAL deficit is forecast to be $7.7 billion in the year to June 30 2010, increasing to $9.3 billion in 2011, before tracking down.
A balanced response to the recession
“Budget 2009 is a balanced response to the recession,” Mr English says. “It funds public services, maintains entitlements, and meets the increased cost of benefits, while at the same time taking the first steps towards improving productivity and competitiveness in the longer term.
“Our focus over the next year will be rebuilding business confidence, which will further help to preserve and create jobs, and ensuring that young people remain connected with the workforce and improve their skills.
“The Government is confident about New Zealand’s prospects over the next few years. We believe New Zealand has a genuine opportunity to emerge from the recession in a stronger position than most other countries.
“Budget 2009 is the first step to ensuring that happens.”