Hon Bill English

Minister of Finance

24 May 2012

Budget frees up $4.4 billion for higher priorities

Budget 2012 has freed up $4.4 billion to invest in improving frontline public services and getting better results, while running a zero Budget, Finance Minister Bill English says.

“At a time when the Government’s finances are constrained, these savings provide significant funding to put into new initiatives aimed at improving frontline public services and getting better results for New Zealanders,” Mr English says.

“At the same time, they allow the Government to run a zero Budget, ensuring a return to surplus in 2014/15, based on Budget forecasts.

“The Government is committed to getting better results with limited resources. Redirecting lower priority spending and raising some extra revenue by closing tax loopholes plays a key role in meeting this goal.”

In total, Budget 2012 includes new spending initiatives worth $4.42 billion in the current year and over the next four years, paid for by $4.39 billion in savings and new revenue initiatives. Savings and revenue initiatives include:

• Tax and excise changes that net an extra $1.36 billion over four years.
• Reprioritisation of $1.28 billion to new spending initiatives within budget votes.
• Reprioritisation of $982 million of savings from across budget votes into significant new spending initiatives in areas like health, education, welfare reform, and science and innovation.
• $772 million from contingencies.

“These savings are consistent with the Government’s approach across the past three Budgets, which have included reprioritising about $9 billion of spending.

“This Government is focused on getting better results rather than just increasing inputs. If something works, we’ll keep on doing it. If it doesn’t, then we will stop it and put the money into an area that yields better results,” Mr English says.

“At a time when many governments overseas are undertaking radical measures to get their books in order, finding these savings while maintaining high-quality frontline public services and income support to the most vulnerable is an achievement.

“The Government will ensure future Budgets continue to focus on improving frontline public services to deliver better results for New Zealanders, at the same time as improving value for money from more than $70 billion of public spending every year,” Mr English says.

Savings – at a glance

Revenue initiatives

• Extra revenue of $1.36 billion over four years, which goes towards new spending initiatives in priority areas like health, education, science and innovation, and welfare reform. Changes include:
o Increasing tobacco excise by 10 per cent a year on 1 January in each of the next four years ($528 million over four years).
o Increasing tax compliance activity, debt collection, and following up on unfiled returns ($423.8 million gross savings over four years).
o Tightening the tax deductibility rules for mixed-use assets ($109 million over four years).
o Tightening livestock valuation rules ($184 million over four years).
o Removing three tax credits that are generally no longer used for their original purpose ($117.1 million over four years).

Student support

• The student support changes in Budget 2012 will provide operating savings of $240.3 million in 2011/12. A further $65 to $74 million a year of operating savings over the next four years will be largely re-invested across the wider tertiary system, while the remainder goes towards new initiatives in other priority areas. Changes include:
o Increasing the student loan repayment rate from 10 per cent to 12 per cent (operating savings of $184.2 million over the next four years).
o Repealing the student loan voluntary repayment scheme (operating savings of $43.5 million over four years).
o Holding the student allowance parental income threshold at its current level for four years (operating savings of $12.7 million over four years).
o Removing student allowance eligibility for more than four years of study (operating savings of $33 million over four years).

Welfare reform

• Reprioritisation of $193.5 million in Vote Social Development to help fund the Welfare Reform package. This includes:
o Reprioritising the Youth Transition Services for Youth Services, including wrap-around support ($58.8 million over four years).
o Changes to Work and Income employment assistance ($96.4 million over four years).
o Part of the funding reprioritised from the Quality Services Innovation Fund ($38.3 million across the current year and the next four years).

Education

• Reprioritisation which goes to other priority initiatives within education, including:
o Using contingency funding from previous budgets ($274.9 million over four years).
o More consistent teacher:student ratios ($173.9 million over four years).

Justice sector

• Reprioritisation within Vote Corrections, most of which will go into higher priorities within Corrections and across the wider justice sector. For example:
o $65 million of funding will go towards new and expanded rehabilitation programmes to help meet the Government’s Better Public Services results target of reducing reoffending by 25 per cent by 2017.
o $87 million will go towards the new Justice Sector Fund to give the justice sector flexibility to invest in areas that deliver the best results to New Zealanders.
• As a result of the Expenditure Review, the department is able to meet its cost pressures through reprioritisation over the next four years.

Housing

• Reprioritisation of $123.1 million funding into other priorities within Housing, such as the Social Housing Fund to support third-party social housing groups to provide more community housing. Savings include:
o Housing New Zealand efficiency savings ($70 million over five years).
o Weathertight Services under-spend ($34 million in the current year).
o Changes to the Welcome Home Loans Mortgage Insurance Scheme ($19.1 million over five years).

ENDS

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