Budget builds growth platform, path to surplus

Hon Bill English
Minister of Finance

19 May 2011

Budget 2011 builds a strong platform for jobs and growth, sets a credible path back to surplus by 2014/15 and helps increase national savings, Finance Minister Bill English says.

“The Budget does this while continuing to protect the most vulnerable New Zealanders, increasing investment in health and education, and establishing a recovery fund to help pay for rebuilding Christchurch,” he says.

Budget 2011 contains several spending and savings initiatives.

“New operating spending of about $4 billion over the next four years is tightly focused on frontline health and education services, which together receive three quarters of total new spending,” Mr English says. “Capital spending is targeted at broadband, rail and schools, alongside investments in the highway network and the national electricity grid.

“In terms of savings, the Budget identifies $5.2 billion of existing government spending out to 2014/15 that will be reprioritised to high priority frontline public services and to reducing deficits.

“The net result is a reduction of $1.2 billion in operating spending out to 2014/15. This compares with previous spending allowances of $1.1 billion a year, which would have increased spending by $4.4 billion. Therefore, we have reduced our debt requirement by $5.6 billion out to 2014/15 from operating spending alone.

“In addition, the Government intends to extend the mixed ownership model – under which Air New Zealand currently operates – to four state-owned energy companies. The move will pay for about one-third of the Government’s investment in new core social assets in the next few years.”

Canterbury Earthquake Recovery Fund

The Government’s cost of the Canterbury earthquakes is a separate item in the Budget. The Government has established the $5.5 billion Canterbury Earthquake Recovery Fund, which will provide certainty for rebuilding Christchurch and surrounding areas.

“The cost of rebuilding Christchurch is too much for its residents alone to bear, but it is manageable within the Government’s overall fiscal programme.”

Getting back to surplus and reducing borrowing

Taken together, Budget decisions mean the Government is forecast to return to healthy surplus in 2014/15 – a year earlier than projected in the December update – with growing surpluses in future years.

Despite the Canterbury earthquakes and a faltering global recovery from recession, net Crown debt is projected to peak at only 29.6 per cent of GDP in 2014/15 and the Government has reaffirmed its long-term objective of keeping net debt to no more than 20 per cent of GDP by the early-2020s.

The forecasts also show the economy growing by 4 per cent in 2012 and over 170,000 new jobs being created by 2015.

“These are considerable achievements,” Mr English says. “We are firmly on a path of creating new jobs, achieving faster growth and posting consistent budget surpluses. This will help to keep interest rates low and free up resources for the competitive parts of the economy.

“As the deficits reduce, the Government’s need to raise debt will diminish significantly. Next year, net average weekly borrowing will fall by two-thirds to about $100 million, and by 2014/15 we will return to surplus and start repaying debt.”

Better targeting spending programmes

To achieve that, the Government has made a number of decisions to better target large spending programmes, reduce the need for extra borrowing and eliminate the budget deficit. They include:

• KiwiSaver changes to increase contributions of private savings from individuals and employers, and reduce the call on borrowed government money for KiwiSaver contributions. KiwiSaver inflows will be little changed and KiwiSaver funds are expected to reach almost $60 billion in 10 years.
• Better targeting of Working for Families to lower income earners to ensure its cost remains sustainable into the future. Working for Families will remain a large and generous scheme, but its cost has almost doubled from about $1.5 billion in 2005/06 to about $2.8 billion this year.
• Encouraging personal responsibility and getting better value for taxpayers from the interest-free student loan scheme, by reducing lending to those less likely to repay. In 2011/12, the Government will still lend about $1.58 billion in student loans.

“These are responsible and balanced measures to provide better value for taxpayers, while still giving considerable assistance to New Zealanders in these programmes,” Mr English says.

Record investment in health and education

Budget 2011 provides record funding for health – an extra $2.2 billion to public health services over the next four years, including an additional $585 million in initiatives in 2011/12.

“Despite the continuing economic situation, this Government will have invested an additional $1.5 billion of new resources into health in its first three years in office to meet our commitment to a strong and enduring public health service.”

In education, the Government has allocated an extra $1.4 billion for schools and early childhood education, with the priorities being student engagement and achievement.

“Education and Tertiary Education spending will rise to a record $12.2 billion in 2011/12,” Mr English says. “The Government will have invested an additional $4.4 billion in education since 2009, a massive total in difficult economic times.”

Boosting savings and investment

The Government has confirmed several other measures to lift national savings and provide New Zealanders with a wider range of investment opportunities.
“Following important and savings-friendly tax changes in Budget 2010 – including across the board personal income tax cuts and a reduction in company tax - this Budget provides New Zealanders with a wider range of investment opportunities and helps give them extra confidence to invest.”

They include decisions to:
• Extend the mixed ownership model to four state-owned energy companies and reduce the Government’s majority stake in Air New Zealand, with Kiwi investors at the front of the queue for shares.
• Create an earthquake Kiwi Bond, which will generate funds to help meet the Government’s share of rebuilding Christchurch.
• Establish a new local government funding agency to provide cheaper funding for local body projects and more liquid assets for investors.
•Resource government agencies to support New Zealanders in making informed investment decisions – including establishment of the new Financial Markets Authority.

“This is a responsible and balanced budget for the times,” Mr English says. “It ensures New Zealand will build faster growth based on savings and exports, so New Zealanders have the jobs and higher incomes they deserve.”

ENDS

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