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Investing in a growing economy

Hon Bill English

Minister of Finance

26 May 2016

Investing in a growing economy

Budget 2016 invests in a growing economy with significant new funding for innovation, infrastructure, the health sector and the most vulnerable New Zealanders while still managing the finances tightly and repaying debt, Finance Minister Bill English says.

“We have solid economic growth and the Government’s books are in good shape – giving us options we didn’t have eight years ago. This Budget makes positive long-term choices that will strengthen our economy and our communities,” Mr English says.

“The outlook for the economy is positive. Businesses are investing, job growth is solid and wages are rising faster than inflation.”

Treasury is forecasting real GDP growth of around 2.9 per cent over the coming year, and 2.8 per cent on average over the five years to June 2020.

An increasingly diversified economy means that, despite low dairy prices, New Zealand’s exports increased by $2 billion last year. Tourism, construction, the beef sector, ICT, wine and much of the manufacturing sector are all performing well.

More than 200,000 more people are in work now than three years ago, and a further 170,000 jobs are expected by 2020.

Over that period, the unemployment rate is expected to drop to 4.6 per cent and the average wage is forecast to rise to $63,000 a year - $16,000 more than when National first came into office.

Mr English says solid, sustained economic growth, combined with the Government’s responsible fiscal management, mean surpluses are rising and debt is falling.

Modest operating balance before gains and losses (OBEGAL) surpluses are expected in 2015/16 and 2016/17, increasing to a forecast $2.5 billion the following year, and $6.7 billion in 2019/20.

Net debt is expected to peak at 25.6 per cent of GDP next year and to fall to 19.3 per cent of GDP in 2020/21.

“Responsible fiscal management has been the hallmark of this Government’s previous seven Budgets. Budget 2016 continues this approach.

“Some spending previously earmarked for Budget 2017 has been brought forward, taking the operating allowance this year to $1.6 billion. A further $400 million a year from Budget 2017 has been used to reduce government debt to help reach the 2020 debt target,” Mr English says.

The capital allowance has been reduced to $1.4 billion. However, additional investment funded by capital reprioritisation takes the total new capital spend in Budget 2016 to $2.6 billion.

“These changes will reduce spending by around $1.2 billion over the next five years, helping to further reduce debt and meet the Government’s 2020 net debt target.”

The additional spending in Budget 2016 has been increased to $1.6 billion per year to allow for investment in four main packages:

• Innovative New Zealand – a $761 million investment over four years in science, skills and regional development to help grow and diversify the economy.

• Public infrastructure – a $2.1 billion programme focused on transport, schools, and the infrastructure needed to deliver a modern, flexible tax system.

• Social Investment – $652.1 million over four years to support vulnerable New Zealanders and help them live better lives.

• Health – $2.2 billion over four years to ensure New Zealanders continue to have access to high-quality healthcare.

Mr English says New Zealand has made significant progress in the past eight years.

“That’s down to the hard work of New Zealand households and businesses. They are now reaping the benefits of that hard work.

“Businesses are creating thousands of new jobs and incomes are rising. The Government’s books are back in the black and we’ll soon start repaying debt.

“This is a busy Government that’s ambitious for New Zealand’s future. Budget 2016 builds on the good progress we’ve made by making further investment to help secure that future.”


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