PM Post-Budget Speech - Trans-Tasman Business Circle
Rt Hon John Key
25 May 2012 Speech
Trans-Tasman Business Circle
Thank you for hosting me again, for what has become my regular post-Budget speech.
Yesterday was Bill English’s fourth Budget and again he has done a remarkable job of managing the Government’s books while continuing to maintain the trust and support of New Zealanders in these difficult times.
I also want to acknowledge the support and constructive involvement of the ACT, United Future and Maori Parties, who are all supporting this Budget, as they have supported the previous three.
I am hugely proud of this Budget. It does what governments around the world are striving to achieve.
It gets the Government’s books back into shape, and does so in a way that continues to support New Zealanders, maintain public services and protect the most vulnerable in our society.
That’s a far cry from the measures many governments overseas have had to introduce.
At the same time, the Government is investing in the future.
We're continuing to spend money in priority areas like health and education, and in areas that will help build a more competitive economy, such as infrastructure and innovation.
We’re driving better results from our public services.
And the Government is supporting the rebuilding of Christchurch, including through the $5.5 billion Canterbury Earthquake Recovery Fund.
The headline measure of our financial management in the Budget is the fact that we are on track to post an operating surplus in 2014/15.
It’s not the world’s biggest surplus. But it’s a very important milestone.
For the first time in a number of years, the Government will be raising enough revenue to meet its commitments without having to increase debt. And, from that time on, we can begin to get our existing stock of debt down to more prudent levels.
That represents a huge turn-around, given the impacts of the 2008 recession, the global financial crisis and the Canterbury earthquakes.
Each of those events on its own would have been a big shock to the New Zealand economy.
We have been dealing with all three of them, using the Government’s balance sheet to cushion the effects of each shock on New Zealanders.
In fact, each Budget we have delivered has been in the face of significant challenges.
When Bill English stood up to give his first Budget, in 2009, the economy had shrunk two-and-a-half per cent over the previous year, from the first quarter of 2008 to the first quarter of 2009. That was the largest annual percentage fall in GDP since the early 1980s.
At the time of Budget 2010, the economy was still fragile as a result of the recession and the global financial crisis.
The Budget last year had to respond to the Canterbury earthquakes.
And yesterday, the 2012 Budget was delivered against the backdrop of considerable volatility in the markets as they continue to second-guess how the debt crisis in Europe will unfold.
That uncertainty and volatility simply reinforces the Government’s approach in this Budget, and over all our Budgets.
The Government’s responsible fiscal management and, in particular, our discipline around spending and capital management, is strengthening New Zealand’s resilience in what will continue to be uncertain times.
It is maintaining New Zealand’s international credibility – a status that is hard won but easily lost, as a number of countries around the world are finding out.
It is helping to keep interest rates lower for longer, take pressure off the exchange rate, and reduce future finance costs.
And it allows us to
pursue the other three priorities of the Government:
• To build a more productive and competitive economy.
• To deliver better public services, within tight financial constraints.
• And to support the rebuilding of Christchurch
Since this is a business audience, I want to spend a bit of time talking about building a productive and competitive economy.
I’ll then go on to talk about better public services.
The first thing to say about the economy is that there has been a lot of rebuilding to do.
The New Zealand economy lost competitiveness in the 2000s because growth was built on all the wrong things – debt, consumption and a huge increase in government spending.
And the internationally competitive parts of the New Zealand economy, which should be the engine of economic growth, were going backwards – they were effectively in recession from 2004 onwards.
Think of it like a big sugar high that ended with a big crash, and a lot of tears, in 2008.
Looking forward, growth across the developed world will now have to be earned the hard way.
It won’t be stoked along by government spending and it won’t be fed by a big increase in borrowing.
Households, businesses and governments are having to reduce the debt they built up over the 2000s, and they are saving rather than spending.
So anyone who is out there complaining that New Zealand isn’t growing at four, or five, or six per cent a year is on the wrong planet.
No-one in the developed world is doing that.
The Budget forecasts, which follow a similar
pattern to other international forecasts, predict that over
the next three years:
• The Euro area will grow at an average of only around half a per cent a year.
• The UK will grow at just over one per cent a year.
• Japan at one-and-a-half per cent a year.
• The US and Canada at just over two per cent a year.
• And Australia at around three per cent a year
That is the world environment we are in.
Like it or not, we can’t change that environment.
New Zealand is only a quarter of one per cent of the world economy so we are necessarily affected by what goes on in the rest of the world.
But the good news is that if we continue do things right, we can stand out from a large part of the pack.
In fact we already are.
Growth in New Zealand over the next three years is forecast to be higher than in any of the countries I just mentioned, with the exception of Australia, which is expected to have around the same growth rates as New Zealand.
That’s because growth in New Zealand will be based on strong fundamentals, which the Budget forecasts recognise.
We have sound economic and financial institutions.
We are producing the sorts of products, and providing the sorts of services, that will be in demand over coming decades.
Sixty per cent of our exports now go to Australia, East Asia or Southeast Asia. East and Southeast Asia, in particular, are the most vibrant and thriving regions in the world.
And the rebuilding of Christchurch is effectively a massive stimulus programme funded to a significant degree through insurance pay-outs from overseas.
So in fact New Zealand faces a relatively favourable set of circumstances and opportunities over coming years.
We have to make the most of the opportunities while at the same time recognising that we are not immune to global risks.
The Government’s role is to make sure the economy’s settings are conducive to business confidence and growth.
So, for example, we have realigned the tax system to increase the incentives to work hard, save and invest, and decrease the incentives to consume.
That has included bringing down personal tax rates and the company tax rate.
From 1 July, marginal tax rates will be lower in New Zealand than in Australia, for anyone earning over $18,200. Our company tax rate is 28 per cent, while Australia has confirmed its rate is staying at 30 per cent.
The Government is focused on responding to the key needs of business in the areas of innovation, resources, skilled workplaces, infrastructure, capital and access to markets.
I want to give you a few examples of that focus.
In terms of innovation, the Government has made this a priority area for investment, with a focus on encouraging business innovation in the private sector. That’s because we recognise that New Zealand’s future economic performance depends to a considerable extent on generating and using new ideas.
The Budget includes $326 million of operating and capital funding for science and innovation over four years, including $166 million for the Advanced Technology Institute to help high-tech firms get their best ideas out of the lab and into the marketplace faster. To complement this, we are also investing in training more engineers and scientists.
In the resources area, our improvements to the Resource Management Act have led to faster consenting for large, nationally significant projects. This has meant, for example, that Contact Energy’s $1 billion geothermal power station near Taupo was consented in only eight months.
The Government’s next step is to introduce faster consenting for medium-sized projects through a six-month time limit.
In terms of workplaces, we have introduced 90-day trial periods for new employees, which is encouraging businesses to take on new staff. And we are improving collective bargaining processes to reduce bureaucracy and costs.
And we are continuing to invest heavily in New Zealand’s infrastructure, including over $1 billion a year in state highway improvements; $1.35 billion for ultra-fast broadband, a further $300 million for the Rural Broadband Initiative, a substantial upgrade of the nation’s electricity grid, investment in both national and commuter rail, and continued spending on schools and hospitals.
The Budget continues this programme of investment in productive infrastructure.
In particular, the Budget establishes the Future Investment Fund, which will receive all proceeds from the Government’s sale of up to 49 per cent of shares in four SOEs and Air New Zealand. The proceeds are expected to be between $5 billion and $7 billion, and will be reinvested in public assets, such as modern schools and hospitals, over the next few Budgets.
Through all these initiatives, and many others, we recognise that people get jobs, and wages rise, only when businesses in New Zealand have the confidence to invest, hire more staff and compete with the rest of the world.
So we are giving them that confidence.
The other Government priority I want to talk about today is better public services.
The public sector has been getting more efficient, with a much sharper focus on costs.
We have seen a good deal of change already, driven by measures we have introduced over our four Budgets. And that will continue over the next few years.
This has been characterised by our opponents as ‘slashing and burning’ the public sector but it’s nothing of the sort.
It has actually been a process of gradual change where the public sector starts thinking of its costs and its business in the way the private sector has always done, rather than relying on the government for a funding top-up each year.
But the big change I am personally driving in the public sector is a focus on results. Not on how much money we are spending or on how many people are employed, but on actually getting things done – getting traction on difficult issues like reducing crime and long-term welfare dependency.
I came into politics to make a difference, and there is no greater place you can make a difference in my job than in dealing with the most difficult social issues.
And that’s what the Budget allows us to do. The Government’s responsible financial management means we have the ability to focus on the really important issues while also keeping our finances on track.
At the beginning of this year I set out 10 challenging results I expect to see achieved over the next three to five years.
I want to mention a few of these and how the Budget will help us to achieve them.
One of the results I expect to see is a reduction in long-term welfare dependency. In particular, I want to see a significant drop in the number of people who have been on a benefit for more than 12 months.
So the Budget includes a $287 million up-front investment over the next four years in the first phase of the Government’s welfare reforms.
This funding, which is a mixture of new and reprioritised money, will provide more support to help people off welfare and into work. It includes additional childcare and more support for those young people at risk of becoming long-term beneficiaries.
Another result I expect to see is an increase in immunisation rates for infants and a substantial reduction in rheumatic fever cases among children.
The Budget doubles funding for the Government’s rheumatic fever campaign, to include a new school throat swabbing programme in high-risk areas of the country. That takes funding for the overall campaign to $24 million over five years.
I also expect more young people to come through the education system with a solid base of skills. The Government has set a target of 85 per cent of 18-year-olds having NCEA level 2 or equivalent in five years, up from 68 per cent currently. That’s a hugely challenging target.
In response, the Budget invests in improving the quality of teaching in our schools, which is the key to raising achievement for all students.
We’re putting $60 million, for example, into boosting new teacher training and development.
We also want to identify great teaching, and make it common practice, so we’re going to work with the sector to develop an appraisal system which helps improve performance. The single most important thing we can do to raise achievement is improve the quality of teaching, and Budget 2012 commits to that.
And I also expect a reduction in the rate of reoffending, from people who are in prison or serving a community-based sentence. The Government has set a target of reducing reoffending by 25 per cent by 2017, which would mean 18,500 fewer victims of crime each year.
In response, the Budget includes funding of $65 million over the next four years, reprioritised from within the Department of Corrections, to boost prisoner rehabilitation and reintegration programmes.
Ladies and Gentlemen.
I want to conclude by saying that this year’s Budget achieves a balance many other countries would dearly like to emulate.
We are on track to meet our fiscal objectives, yet at the same time we are getting on and doing things.
By committing to surplus by 2014/15, we are taking a responsible path of fiscal management, while at the same time continuing to invest in future growth.
We are helping build more a competitive and productive economy, both through our management of the Government’s books and through specific initiatives, like those in the area of science, innovation and research.
We are freeing up funding to deliver better results in public services.
And we are continuing to support the rebuilding of Christchurch.
When it comes to the world economy the future is, of course, uncertain.
No-one knows for sure what might happen.
That makes our balanced and responsible approach even more important. We’re putting the economy in the strongest position to cope with any situation that might eventuate, by getting the books into order and limiting debt.
And what we’ve shown over the past three-and-a-half years is that we can successfully adapt to situations that present themselves.
Personally, I am very optimistic for New Zealand.
We have a lot going for us.
The Budget helps us go out and seize the opportunities that are there.