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Budget 2011 – Building Our Future

19 May 2011

Budget 2011 – Building Our Future

Builds a platform for savings and growth, sets a faster return to surplus

• Returns the budget to surplus in 2014/15 – a year sooner than forecast in December – reducing the need for Government borrowing and lifting national savings.

•Forecast economic growth of 4 per cent in 2012, with 170,000 new jobs being created by 2015.

•Creates the $5.5 billion Canterbury Earthquake Recovery Fund for infrastructure and schools; temporary housing; trades training; welfare and business support; and CBD demolition costs.

• Invests $4 billion in frontline public services in areas such as health, education and supporting young people into jobs.

• Makes changes to KiwiSaver, Working for Families and Student Loans to make the schemes sustainable into the future and reduce the need for Government borrowing.

• Creates investment opportunities for New Zealanders by extending the mixed ownership model to four state-owned energy companies and reducing the Government’s majority stake in Air New Zealand.

Reducing Government borrowing

•Redirects $5.2 billion of existing spending to priority public services and reducing deficits - saving $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 over the next four years. Therefore, we have reduced our debt requirement by $5.6 billion in the period from operating spending alone.

• Average net weekly borrowing requirement will fall by over two-thirds to about $100 million in 2011/12, and the Government will start repaying debt in 2014/15.

Lifting New Zealand's national savings

• Changes to KiwiSaver increase private savings, reduce Government borrowing for subsides and lift national savings overall. KiwiSaver will grow significantly - to about $25 billion by 2015 and $60 billion by 2022.

• Budget 2011 provides attractive investment opportunities for Kiwis by extending the mixed ownership model, creating a new Christchurch earthquake bond and a new inflation-indexed bond.

Budget initiatives at a glance

(All figures for four years to 2014/15, unless stated otherwise)

Extending the mixed ownership model

The Government has agreed to extend the mixed ownership model to four state-owned energy companies and reduce its majority shareholding in Air New Zealand.

•This would happen in a three to five year programme starting in 2012 – with the Government retaining a majority stake in all five companies and Kiwi investors being at the front of the queue for shares.

•It would free up between $5 billion and $7 billion, which would pay for high priority new capital investment in future Budgets and reduce Government borrowing.

•It would broaden the pool of investments available to New Zealanders and contribute to deeper capital markets, as well as bring sharper commercial disciplines, more transparency and greater external oversight for the companies involved.


The initial $1,000 Kick-Start payment is unchanged.

Changes to KiwiSaver in Budget 2011 will encourage a higher level of private savings and make the scheme more financially sustainable. The changes, which will free up $2.6 billion over four years, include:

•1 April 2012: The tax-free status of employer contributions will end.

•For the year ending 30 June 2012 and beyond: The Member Tax Credit will halve to 50c for every $1 contributed by members up to a maximum of $521 a year. The first tax credit payments at these new levels will occur in the second half of 2012.

•1 April 2013: The minimum employee contribution and compulsory employer contributions rise from 2 per cent to 3 per cent.

Working for Families

Changes will better target Working for Families to low income earners and save $448 million over four years. The changes are expected to take place in four steps between 1 April, 2012 and 1 April, 2018, so that eventually the scheme has:

• A slightly lower abatement threshold of $35,000, compared to the current $36,827.

• A slightly higher abatement rate of 25 cents in the dollar, compared to the current 20 cents in the dollar.

• An alignment between the Family Tax Credit (FTC) payments for children aged 16 years and over and the FTC payments for those aged 13 to 15

Interest-free student loans

• Encouraging personal responsibility and getting better value for taxpayers from the student loan scheme by restricting eligibility for some groups. The changes free up $276.6 million operating spending and $170 million capital over five years.

Better public services

The Government will require the wider state sector to find $980 million in savings over three years from 1 July 2012 to go towards improving frontline public services and reducing debt. The savings are made up of:

•$650 million from requiring wider state sector agencies to fund their own employer contributions to workplace savings schemes.

• $330 million from back office efficiencies in core government agencies.


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

•$18 million for 40 extra medical training places – part of the Government's promise to boost medical training places by 200.

•$54.5 million for maternity initiatives to improve safety and quality, and extra WellChild visits, with a particular focus on first time mothers.

•$80 million for widened access to medicines. It is expected around 32,000 patients in the first year will benefit from this extra funding.

•$68 million for more elective surgery, continuing the record increase of 4,000 extra operations a year, and reducing waiting times.

•An extra $130 million for disability support services.

•$80 million extra from DHBs for GP visit subsidies and $14 million for programmes such as very low cost access and free under sixes.


Schools and early childhood education receive an extra $1.4 billion in operating and capital funding out to 2014/15, with total education spending rising to a record $12.2 billion in 2011/12. This includes:

•An increase of $118.1 million in school operating funding.

• An extra $550.3 million for early childhood education, focused on increasing participation for Maori, Pasifika and low-income families.

•$66.5 million to increase the number of Trades Academies and Service Academies, to keep more 16 and 17 year olds engaged in education and training as part of the wider Youth Guarantee.

•$59.7 million in new operating and capital funding for school property, and $60 million over four years of reprioritised funding to build new kura, and upgrade existing buildings.

•$51.5 million for the school network upgrade project – part of ultra-fast broadband support for schools.

•$12 million of new funding with a specific focus on lifting Maori achievement, and $17 million of reprioritised funding to extend the Te Kotahitanga programme to an additional 20 schools.

Tertiary education - Up to 750 additional places in high performing private training establishments, $17.5 million for English courses for refugees and migrants, reallocating youth training funding for additional Youth Guarantee places - bringing the total to 7,500 places – and a 2 per cent increase in funding for all degree and post-graduate courses.


The justice sector receives $157 million more over two years, including:

•$34.1 million in 2010/11 and $69.4 million in 2011/12 to address funding shortfalls in legal aid.

•An extra $4 million in 2011/12 for Community Law Centres.

•$22.5 million over two years and a capital injection of $3.2 million to meet increased demand and associated costs for Crown prosecutions.

•$8.3 million over two years for increased capacity and capability for investigating and prosecuting complex or serious crime.

• More than $8 million for the Serious Fraud Office over two years, allowing more investigations and prosecutions of serious fraud.

Social Development

•$55.2 million over four years to support young people into jobs and $15 million more for other employment assistance programmes.

•Community social services get a $25 million boost in the 2011/12 year through the Government’s Community Response Fund.


The Government infrastructure programme receives $1.6 billion more in Budget 2011. It includes:

•$942 million to complete the Government’s funding commitment of ultra-fast broadband and $28 million more to connect fibre to schools.

•$250 million more for KiwiRail to help fund its 10-year Turn Around Plan, as well as $88 million for Wellington's Metro Rail.

•$109 million for education including leaky building remediation and advancing a public-private partnership for two schools at Hobsonville.

Water and irrigation

•An Irrigation Acceleration Fund of $35 million supporting development of irrigation infrastructure proposals. A Fresh Start for Fresh Water Clean Up Fund to help councils with historic pollution problems – including reprioritised funding of $15 million over two years, and a total clean-up programme commitment of $264.8 million.

• The Government will also consider in a future Budget investing up to $400 million of equity in water infrastructure schemes.

Other key initiatives

•$58 million over the next four years for Statistics New Zealand to update its IT systems supplying important economic and social data.

• $27.6 million over the next two years for igovt services to make it easier for people to interact with government agencies online.


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