Budget builds on recovery, helps families
Hon Bill English
Minister of Finance
20 May 2010
Budget builds on recovery, helps families
Budget 2010 focuses squarely on faster growth, helps families get ahead and sets a credible path for getting back to surplus sooner, Finance Minister Bill English says.
It also delivers the biggest reform of the New Zealand tax system in 25 years.
“Across the board personal tax cuts and a package of other tax changes will help boost economic growth, make the tax rules fairer and help hard-working Kiwis get ahead under their own steam,” Mr English says.
“This tax package will leave someone on the average wage about $15 a week better off and an average family about $25 a week better off.”
Budget 2010 builds on New Zealand’s economic recovery and tilts the economy so faster growth and new jobs come from the right places.
“For too long, New Zealand has relied on investment property speculation, rising debt and increases in Government spending we could not afford.
“This Budget takes action that will encourage investment in the productive parts of the economy such as exporting, and it gives the vast bulk of New Zealanders extra cash in their pockets so they have more choices.”
The Budget also continues the Government’s multi-billion dollar investment in infrastructure such as ultra-fast broadband, roads, rail, schools and prisons, and it makes a substantial investment in research, science and technology.
Despite the tight fiscal environment, the Budget helps families and the most vulnerable by investing billions of dollars more over the next four years in priority social services such as hospitals, schools and law and order.
Helping families get ahead in New Zealand
Budget 2010 grasps a once-in-a-generation opportunity for New Zealand to stand out from other countries by building a stronger, faster-growing economy with low debt and low taxes by world standards, Mr English says.
“We owe it to hard-working Kiwi families to provide them with the financial security, opportunities and higher take-home incomes that allow them to get ahead here in this country – instead of chasing better opportunities overseas. This Budget does those things and sets out a path to build on our recovery.”
Turning back debt, getting back to surplus
Budget 2010 takes further steps to get rising debt under control and return the Government to surplus three years sooner than forecast in Budget 2009.
“A year ago, forecasts showed we faced nine years of deficits. This Budget forecasts we will return to surplus in 2016. That’s good progress, but we will continue to work hard to get back into surplus more quickly,” Mr English says.
“We still expect to borrow an average $240 million a week, every week until 2013, before this amount falls away as we move closer to budget surplus.
“It’s important we continue to make considered decisions now so we can grow the economy faster and avoid having to make harsh decisions later.”
Tax reform, investing in engines of growth
Those decisions include:
• From October 1 2010, personal taxes will be cut across the board, GST will rise to 15 per cent and NZ Superannuation, Working for Families and benefit payments will all increase. As promised, the vast bulk of households will be better off from this switch of taxes.
• From the start of their financial year in 2011, companies will be taxed at a rate of 28 per cent, down from 30 per cent – ensuring New Zealand is competitive internationally.
• Tax rules will be tightened for investment property to make the system fairer and to encourage productive investment and exports.
• Budget 2010 strongly supports research, science and technology – a key engine for a faster growing economy. It provides $321 million over four years for new initiatives in this important area.
• An extra $2.1 billion will be spent on frontline health priorities over the next four years – including an extra $512 million in 2010/11.
• An extra $1.4 billion will be injected into better schooling and early childhood education over four years – including an extra $417 million in 2010/11.
• Another $1.8 billion will be freed up over the next four years for priority areas such as healthcare, education and law and order. This is in addition to the $2 billion of lower priority spending found in Budget 2009.
• The Government will live within its $1.1 billion annual operating allowance for new spending in Budget 2010. It will restrict subsequent increases in the allowance to 2 per cent annually.
Budget package boost for economy
The Government’s growth-focused economic programme is contributing to a brighter outlook for the economy. In the March 2011 year, growth is forecast at 3.2 per cent, compared with the 2.4 per cent predicted in December.
“We can also clearly see the expected extra growth from the Budget tax package,” Mr English says. “The package is conservatively forecast to add about 1 per cent to the size of the economy by 2017.
“Despite the better growth outlook, by 2012 GDP per capita will still be about 5 per cent below Budget 2008 forecasts.”
The higher growth outlook does not materially change the immediate fiscal position – and certainly does not alter our medium-term challenge of getting back to surplus and reducing debt, Mr English says.
“We expect to run an operating deficit of $8.6 billion in the coming year, and further deficits are forecast until 2016, when we return to surplus. As a result, net debt is forecast to rise sharply from 14.1 per cent of GDP in the current year to a peak of 27.4 per cent of GDP in 2015, and then falling.”
Better public services and social programmes
It is clear to the Government that previous ways of delivering essential frontline public services and social policy programmes can be improved.
“On behalf of taxpayers, we spend tens of billions of dollars a year on public services and social programmes, so we owe it to those taxpayers and users of public services to do the best possible job for them,” Mr English says.
“There is considerable scope to remove duplication, improve processes and reallocate resources to deliver better frontline services.
“Budget 2010 continues this process across all the big portfolios of social development, health, education and law and order – where we are spending more money than any previous Government.
“We are calling government agencies to account and changing the way we work with the NGO sector – giving more control of service delivery to communities.
“And we have moved money into priority public services such as hospitals, schools and law and order – investing heavily in them using a combination of new funding and money redirected from lower priority areas. We will continue to do this over the next three or four years.”