Budget 2007 Summary: Economic Transformation

Budget 2007 builds on the Labour-led government's progress over the last seven years to transform New Zealand into a more dynamic and innovative economy better able to withstand the economic, social and environmental challenges we face. We are investing to lift the sustainable rate of growth of the economy to allow all families, young and old, to enjoy higher living standards from a more prosperous economy.

New Zealanders are wealthier, more secure and enjoying greater opportunity than ever before thanks to consistent economic growth, rising wages and one of the lowest unemployment rates in the world. However, important challenges remain. Economic success has generated inevitable imbalances. We face rising inflation, high interest rates and an over-valued exchange rate. Climate change also poses serious economic, environmental and social challenges.

Budget 2007 aims to put New Zealand on a sustainable footing. We have an integrated strategy designed to create a more resilient and flexible economy.

That is why saving and investing are centrepieces of Budget 2007. New Zealanders are being encouraged to save more, far earlier in their working lives to help secure their retirement dreams. Tax credits for those who save through KiwiSaver will help New Zealanders grow assets beyond the family home. If we save more, we consume less, easing inflation and so pressure on interest rates and the dollar. It's good for workers, for businesses and the economy.

To improve opportunity we also need to grow more globally competitive firms, producing products that command a premium overseas. That's why Budget 2007 invests $3.4 billion over four years in a package of measures designed to encourage greater business investment and improved competitiveness. A lower company tax rate, tax credits for research and development and proposed international tax rules will encourage investment in innovation and expansion, both here and overseas. Exporters also win further market assistance.

A highly skilled workforce is critical to lift productivity. This government has revitalised skills training and the business tax measures will further encourage investment in productivity improvements. Budget 2007 also expands support for industry training and provides greater funding for tertiary institutions to ensure they produce more of the right mix of skilled graduates.

Investing in world-class infrastructure is also essential to achieve higher sustainable economic growth. The Labour-led government has embarked on the biggest ever road building programme and increased spending on public transport ten fold. Budget 2007 invests further capital to support the construction of state highways. Regional fuel taxes will also improve the ability of regions to fund priority investments.

Developing Auckland as an internationally competitive city is vital to drive a more dynamic economy and that's why Budget 2007 continues progress in modernising the city's transport infrastructure. $600 million will be invested over six years for the government’s contribution to urban rail development projects in Auckland and Wellington and $50 million for general track improvements to the national rail network. These investments are key to developing a more sustainable transport network and underscore the government's commitment to ensure New Zealand deals with the challenge of climate change.

Budget 2007 encourages businesses to adopt environmentally friendly business practices and gives households a helping hand to improve their lifestyles and have energy efficient homes.

Economic transformation: major initiatives

Saving

- $3.2 billion in tax credits for KiwiSavers and employer contributions

Investing
$3.4 billion Business Tax Reform package including:
- $2.1 billion for a company tax rate cut to 30 per cent
- $630 million for a tax credit for R&D
- $112.5 million for new international tax rules
- $87.8 million to expand Market Development Assistance scheme
- $53 million to expand industry training

World class infrastructure
- $650 million for electrification of rail in Auckland, improvements in Wellington and for general national track improvements (over six years)
- $145 million for the State Highway Cost Guarantee Plan
- Regional fuel tax

Highly skilled workforce
- $285.1 million operating funding and $79.7 million of capital funding for tertiary education organisations to fund "investing in a plan" approach.
- This total package of funding includes:
o $53 million provided as part of Business Tax Reform to expand industry training; and
o $28.9 million for student support to improve access to tertiary education

Environmental sustainability
- $72.4 million to encourage energy efficient homes
- $30.5 million operating and $1.6 million capital for government, business and household sustainability initiatives

ENDS

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